Posted on 15 September 2009

During the past few weeks we have serialized a 30,000 word story about a network of market miscreants that includes disreputable financial analysts, prominent financial journalists, associates of the Mafia, some of America’s best-known hedge fund managers, and Michael Milken, the famous criminal from the 1980s. The story focuses on the travails of Dendreon, a company with a promising treatment for prostate cancer, but it describes market machinations that have affected hundreds of other companies, and it contains a larger message about the the “deep capture” of our nation’s media and regulatory bodies.

Now we publish the full, 15-chapter story as a single document….

This story, like too many others, begins with Jim Cramer, the CNBC personality, making “a mistake.”

On September 26, 2005, Cramer announced to his television audience the sad news (punctuated by funny sound effects – a clown horn, a crashing airplane) that Provenge, an experimental treatment for prostate cancer, had flopped. Thousands of end-stage patients had been pinning their hopes on Provenge, but according to Cramer the treatment had just been rejected by the Food & Drug Administration. It would never go to market.

This seemed odd, because Dendreon (NASDAQ: DNDN), the company developing Provenge, had not yet submitted an application for FDA approval. As everybody in the biotech investment community knew, Dendreon had, in fact, only recently completed Phase 3 clinical trials and probably would not face scrutiny from an FDA advisory panel for at least another year.

As for the likelihood that the advisory panel would eventually vote in favor of Provenge, the odds looked quite good. The Phase 3 trials had demonstrated that Provenge significantly increased patient survival with only minimal side-effects, such as a few days of mild fever. Moreover, Provenge was an altogether different sort of treatment – one that fought tumors by boosting patients’ immune systems rather than subjecting them to the ravages of chemotherapy.

Provenge was not a magical elixir of life, but Dendreon was doing more than just developing a new technology. It was pioneering a treatment that could revolutionize the way that doctors fight prostate cancer. By some conservative estimates, the market for Provenge alone could reach more than $2 billion a year. If the treatment could be applied to other cancers, the market would be even larger.

The morning after Cramer declared Dendreon and Provenge to be dead in the water, Mark Haines, the anchor of CNBC’s “Squawk Box” program, apologized for Cramer’s “mistake.” That afternoon, at an important UBS investor conference, Dendreon presented still more promising data. This would normally have given a significant boost to the company’s stock price, but the value of Dendreon’s shares stayed flat for the day, and then began a gradual decline.

This had partly to do with Cramer. The next evening, on his “Mad Money” program, the journalist (or entertainer, or self-confessed criminal, or… whatever Cramer is) acknowledged that the FDA had not yet rejected Provenge, but drawing upon his medical expertise, Cramer maintained that Provenge was not effective. In characteristically level-headed fashion, he announced that Dendreon shareholders were drunken, carousing, gambling Falstaffs who “might as well take their money to Vegas.”

What Cramer meant by “battleground ” has since become all too apparent. For the past four years, Dendreon has been one of the most manipulated stocks on NASDAQ. During some periods the volume of trading in the shares of this little company has exceeded the trading in America’s largest corporations – a good sign that hedge funds have been churning the stock to move the market.

And with every burst of good news, the company has faced waves upon waves of naked short selling – hedge funds illegally selling millions of shares that do not exist to flood the market and drive down the stock price. Along with the phantom stock, people seeking to diminish Dendreon have deployed false financial research, biased media, bogus class action lawsuits, Internet bashers, dubious science, and other familiar weapons of the “battleground.”

The denouement of this stock market “battle” occurred recently, on April 28, 2009, when Dendreon was to present all-important results at the American Urological Association’s annual meeting in Chicago. Some days prior, Dendreon’s CEO, Mitch Gold, had announced that the results of an Independent Monitoring Committee study were “unambiguous in nature…a clear hit” for Provenge.

If a CEO uses language like that and does not produce the data to back it up, he is guaranteed a visit from the Securities and Exchange Commission. Unless the CEO or his allies have juice with the SEC, the commission will usually charge the CEO with making false statements to pump his stock. Gold was unlikely to take that risk, so it was clear to most people that the meeting in Chicago was going to be a triumph for Dendreon.

And it indeed it was. The data presented that day showed that Provenge lowers the risk of prostate cancer death by 22.5 percent, with little or no toxicity. With a few notable exceptions (some of whom are to appear as prominent characters in this story), nearly every medical professional on the planet now concurred that Provenge was a blockbuster drug – one that should receive FDA approval and make Dendreon a highly profitable company.

But the hedge funds weren’t finished. In the days following Gold’s announcement, short sellers piled on with a vengeance, returning Dendreon to the leagues of the world’s most heavily traded stocks. The firm once again found itself on the SEC’s “Reg Sho” list of companies whose stock was “failing to deliver” in excessive quantities –a sign of illegal naked short selling.

On CNBC, meanwhile, Cramer had hammered Dendreon. On April 6, 2009, amidst ear-rattling sound effects –dogs fighting, and (inexplicably) a baby crying — Cramer had said “I don’t like Dendreon.” He had shouted that Provenge had no chance of getting FDA approval and Dendreon shareholders should “SELL! SELL! SELL!”

Just minutes before 12:30 pm central, Dendreon’s stock price began to fall. It didn’t just fall–it nosedived from $24 to under $8 … in 75 seconds. That’s correct, during a period of 75 seconds, more than 4,000 trades were placed, totaling 3 million shares, or about 50% of Dendreon’s (spectacularly high) average daily volume. Given that the message board poster knew what was coming more than two hours beforehand, and predicted the timing almost precisely, it is a safe bet that this was a coordinated, illegal naked short selling attack. And just in case you still didn’t get this – it caused Dendreon’s share price to lose more than 65% of its value – in just 75 seconds flat.

“My desk was floored,” one trader wrote on a message board. “We all just stood up swearing, headsets and other assorted desk items being thrown at monitors…I haven’t heard that much swearing in years…”

It was, say others, one of the strangest occurrences in Wall Street history.

* * * * * * * *

In fact Dendreon had witnessed even stranger occurrences – brutal naked short selling attacks occurring simultaneously with antics that simply have no precedence in the world of medicine. As will be described presently, these strange occurrences very nearly destroyed Dendreon in 2007. These strange occurrences have also prevented patients from having access to Dendreon’s treatment – a treatment that, as will become clear, should have reached the market some time ago.

And from the day of that first strange occurrence in September 2005, when Cramer predicted that Dendreon would become a “battleground” stock, to the latest strange occurrence in April 2009, when Dendreon’s stock nosedived by 65% in 75 seconds, more than 60,000 men in the United States died of prostate cancer.

So we must ask: Who did this? Who stood to profit from Dendreon’s demise? Were the extremely odd delays in getting Provenge to market purely accidental? Or, were the remarkable trading patterns and volatility accompanying those delays in fact an expression of stock manipulation, and if so, who were the manipulators? Since we know that Dendreon experienced naked short selling, and naked short selling is a crime, who are the criminals? And when much of the medical community rallied around Provenge last month, which manipulators crashed the stock to single digits – possibly to make the company ripe for a hostile takeover by the very people who once sought to destroy it?

* * * * * * * *

It is one of the peculiarities of the Securities and Exchange Commission that while it is ever-eager to hassle CEOs of small companies, it goes to considerable lengths to protect billionaire hedge fund managers. The SEC has publicly stated that naked short selling is a crime. It has said that it has evidence that illegal naked short selling occurs on a large scale and does serious damage to public companies. But it almost never says which hedge funds are responsible. It never says who is flooding the market with phantom stock.

As far as the SEC is concerned, it’s all a big secret. As the commission states on its website, the naked short selling statistics “of individual firms and customers is proprietary information and may reflect firms’ trading strategies.” It seems not to matter to the SEC that those “proprietary” trading strategies are illegal.

Meanwhile, the SEC does not require hedge funds to disclose even their legal short positions. As a result, it is impossible for any journalist to present photo-perfect portraits of attacks on companies like Dendreon.

But brokers and other sources can tell us who some of the short sellers are. And by analyzing public information (such as data that hints at various hedge funds’ options strategies) we can make educated guesses as to who has the most to gain from a company’s decline. We can also come to understand the relationships that bind certain hedge fund managers and miscreants, and ask whether these people might have been acting in concert.

If the relationships are few in number, or separated by six degrees, we must abandon the project – a spatter of dots on the wall is not a work of art. But if the dots are plentiful, precise, and show a recognizable pattern, then we have something valuable – a sort of pointillist painting of market behavior.

In the case of Dendreon, we have such a painting. And when we look at this painting, with its dozens of data points, we can see quite clearly the familiar smirk of Michael Milken, the famous “junk bond king” and criminal stock manipulator.

During the times when Dendreon has been most evidently a “battleground stock,” nearly every hedge fund known to have placed large bets against Dendreon and a significant number of Dendreon’s detractors — esteemed medical professionals, financial research analysts, government officials, and Jim Cramer himself – have been tied to Milken or his close associates.

Most of the hedge fund managers who appear in this story are part of a tight network that has been in operation – exchanging information, attacking the same stocks, employing the same tactics – for upwards of twenty years. This is the same network that attacked the major financial institutions in 2008, possibly contributing to the collapse of the American financial system. And though I recognize that some people find this hard to absorb, I will present further evidence that a good number of the people in this network have ties to organized crime – the Mafia.

As for Milken, he was released from prison in 1993, at which point he went to considerable lengths to rebrand himself as a “prominent philanthropist.” One of the “philanthropic” outfits that he founded is the Prostate Cancer Foundation, and for this he has received widespread applause from the media, government officials, and the business elite. Because Milken has effectively bathed himself in the glow of his “philanthropy” (and because his public relations machine is so indisputably clever), many people find themselves saying that Milken’s financial crimes were but misdemeanors – the slight over-exuberance of a “market innovator.”

But the Dendreon story raises serious questions about the nature of Milken’s “philanthropy” – and about a society that venerates and even seeks guidance and favor from the most destructive financial criminal the world has ever known.

* * * CHAPTER 2 * * *

In January 2007, some 15 months after CNBC’s Jim Cramer announced that the FDA had rejected Provenge (even though the agency had not yet reviewed Provenge), the FDA assigned “priority review status” to Dendreon’s application to have the drug approved. Such status is typically granted to drugs whose trials suggest that they can significantly improve the safety or effectiveness of treating a serious or life-threatening disease. Some weeks after receiving “priority review status,” Dendreon announced that an FDA advisory panel would meet on March 29 to vote on whether its treatment for prostate cancer should be approved.

FDA advisory panels are made up of doctors and scientists who are employed on a one-time basis to review a new drug. Their decisions are not binding, but in 97 percent of all cases, the FDA follows the advisory panel’s recommendations. Given that Dendreon’s data results had been strong enough to cause the FDA to fast-track things by granting “priority review status”, it was widely expected that the advisory panel would vote in favor of Provenge, and that the drug would get FDA approval soon after. This was very good news.

Normally, this would be a time for short sellers to close out their trades. Companies receiving priority status (moving them down the road to FDA approval) generally see their stocks soar in value, and typically the prices stay at peak levels, at least until the companies present plans for how they are going to bring their drugs to market.

But in the middle of that March, there was a strange occurrence: short selling in Dendreon began to increase at an unprecedented rate. Illegal naked short selling increased as well.

SEC data shows that on March 16, 2007, over 1 million Dendreon shares “failed to deliver” – because they were sold short by people who did not possess any shares. That is, these naked short sellers took investors’ money but delivered…nothing.

The numbers rose steadily, so by March 28, the day before the advisory panel vote, more than 9 million phantom shares were circulating in the market. And consider that the SEC data might understate “failures to deliver” by factors of ten or more. So by that point the market may actually have been flooded with about 90 million phantom shares – in a company that had only 100 million shares outstanding.

On the night of March 28, 2007, Cramer commented on Dendreon again. He did not mention the phantom stock (in May, 2008, he began a “crusade” against naked short selling, but he started this “crusade” just one day after he was exposed by Deep Capture as a central player in a media cover-up of the naked short selling scandal). Instead, Cramer offered the long-shot prediction that the FDA advisory panel would not approve Provenge. He advised Dendreon’s shareholders to “SELL, SELL, SELL!!!”

This was the “battleground.” And Dendreon was under attack.

* * * * * * * *

The next day—March 29, 2007–the FDA’s advisory panel decided overwhelmingly in Dendreon’s favor. Every one of the 17 scientists and doctors on the panel voted that Provenge was safe, and 13 of the 17 panelists voted that there was substantial evidence that the treatment effectively lengthened the lives of prostate cancer patients.

As you will recall, the FDA had followed the recommendations of advisory panels in 97 percent of all cases. So at this point it seemed extremely likely that Provenge was on the fast track to approval. Most experts expected that Dendreon could begin delivering its treatment to prostate cancer patients within six months. The company’s stock price, which the short sellers had depressed to $4 before the panel vote, now soared.

By the first week of April, Dendreon was worth more than $20 a share.

But the short sellers did not relent. The more the stock rose in value, the more they piled on, flooding the market with still more phantom stock. On the day after the advisory panel meeting, at least 9 million phantom shares were sold, according to the SEC’s unforgivably incomplete data. During the following two weeks, between 9 and 10 million shares were “failing to deliver” on any given day. And on one day, April 5, the total number of shares sold short more than quadrupled.

This was unprecedented, and by any reckoning, it was sheer insanity. Given Dendreon’s prospects for FDA approval, it seemed like the short sellers were flushing money down the toilet. Some observers racked it up to psychology – the short sellers had grown emotionally tied to their positions, and simply could not give them up.

But I offer several other possible hypotheses, which are all mutually compatible. The first is that the short sellers believed that they could generate enough phantom shares to drive the stock price back down, despite Dendreon’s fantastic news. The second is that the short sellers were aware that there was about to be released a wave of lopsided negative financial research and media reports (including more from Cramer) that they expected would crack the stock.

And the third explanation is that the short sellers who made this long-shot bet perhaps knew something that the rest of the world did not. They perhaps knew that some strange occurrences were imminent, and that these strange occurrences would diminish Dendreon’s prospects. And given the especially sharp increase in short selling on April 5, they might have expected that the strange occurrences would begin on that particular day, or soon after.

Alas, something strange would indeed occur on the next day, April 6. And after that, there was another strange occurrence – then still more strange occurrences, one after the other until it seemed that Dendreon and its treatment for prostate cancer would no longer exist.

I will describe these strange occurrences, but first we must understand a bit more about a network of smooth market operators and a “prominent philanthropist” named Michael Milken.

* * * * * * * *

As mentioned, we do not know who was responsible for the illegal naked short selling of Dendreon. The SEC keeps that a secret.

But while the SEC is of no help, most any Wall Street broker can describe several “proprietary” strategies that are popular with unscrupulous hedge funds.

One such strategy is known as a “married put.” Normally, a hedge fund buys from a market maker a certain number of put options—the right to sell a stock at a specified price at a specified date. If on that date the stock has lost value to the point it is below that specified price, the buyer of the put option (the hedge fund) makes money, and the seller (the market maker) loses money. To hedge the risk that he might lose money, the market maker, at the same moment that he sells the put option, also short sells the stock. This is perfectly legal.

But some market markers conspire with hedge funds to drive the stock price down. Instead of merely shorting the shares into the market, the market maker naked short sells the shares, and, importantly, sells those phantom shares to the same hedge fund that bought the puts. As a result, the hedge fund manager winds up with the puts and a matching number of shares (actually phantom shares that are never delivered to him, but about which he never complains, or forces delivery, as that would create upward pressure on the stock, the precise opposite of what he wants). Because the puts and the phantom shares are equal in number and arrive together at the hedge fund, they are known as “married puts”.

Once in possession of the phantom shares, the hedge fund manager proceeds to fire them into the marketplace. But he is able to say that he never naked shorted because all he has done is sold the shares that he bought (wink wink) from the market maker.

Either way, the effect is to flood the marketplace with phantom stock. The hedge fund makes money. And the market maker is rewarded with more business selling married puts.

Incidentally, the fee charged for such puts do not follow any normal option model pricing (in fact, the exchanges search for married puts by looking for options that are mispriced in relation to Black-Scholes, the standard formula that prices options). That is because their pricing is not really a function of any math or statistics, but is a function of the willingness of the hedge fund to pay the option market maker to help him break the rules against naked short selling. And that willingness is a function of how difficult it is for the hedge fund to use other loopholes to break those rules.

In the slang of Wall Street, these married puts are known as “bullets.” Through their maneuverings, the option market maker and hedge fund manager synthesize a naked short position that puts “bullets” into the hands of the hedge fund. The hedge fund fires those “bullets” at the stock to make it collapse, timing the last “bullet” to fire as the hedge fund’s put option expires profitably. If the option position nears expiration and looks like it will expire at a loss (“out of the money”), the hedge fund manager goes back to the option market maker, and together they reload by synthesizing more “bullets.”

Until recently, this behavior flourished owing to a rule called the “options market maker exemption” which is said to have been enacted thanks partly to the pleadings of a “prominent” market maker and investor named Bernard Madoff, who had considerable influence at the SEC. Madoff also obtained an exemption allowing market makers to sell short on a down-tick. The SEC was so grateful for his help in this regard that the commission named the new rule the “Madoff Exemption.” This was before Mr. Madoff became famous for orchestrating a $50 billion Ponzi scheme with help from the Mafia (CNBC’s Charles Gasparino has reported that Madoff might be tied to the Russian Mafia; whistleblower Harry Markopolis stated in Congressional hearings that Madoff appeared to have ties to the Russian Mafia and Latin American drug gangs; and Deep Capture’s own investigations suggest that Madoff did business with multiple people with ties to both Russian and Italian organized crime).

The options mark maker exemption permitted market makers (e.g. Madoff) to sell stock that they did not possess, so long as they were doing so temporarily to “maintain liquidity.” Abusing that exemption in order to facilitate naked short selling in cahoots with hedge funds looking to drive down stock prices was blatantly illegal, but the SEC looked the other way, even as market makers failed to deliver shares for weeks, months, and even years at a time. If anyone raised a fuss, the hedge funds would say that the phantom shares didn’t originate with them, the SEC would say that stock manipulation is hard to prove, and the market makers would say that they weren’t breaking any rules.

* * * * * * * *

At any rate, in March 2007, with Dendreon seemingly on the fast track to FDA approval, most traders were rushing to buy the company’s shares. A specific set of hedge funds, however, purchased large numbers of put options in Dendreon. Without a subpoena, we cannot say for sure whether the put options they bought were married to naked short sales, but simply from their put activity it is clear that these hedge funds were placing quite large bets against Dendreon, and they maintained these positions even after the FDA advisory panel voted in favor of Provenge on March 29.

To understand how completely anomalous these bets were, consider that in the entire universe of 11,500 hedge funds, only ten held put options on large numbers (more than 150,000) of Dendreon shares at the end of March 2007. Two of those ten funds held put options on relatively few (200,000 each) Dendreon shares and cashed out soon after the FDA advisory panel meeting. They do not appear to have otherwise been major traders in Dendreon, so I will not mention their names.

One of those ten hedge funds is Apollo Medical Fund Management, which is managed by a man named Brandon Fradd. Fradd was once accused of burning documents relevant to a civil court case. Fradd was also once the limited partner of a criminal named Reed Slatkin, who was indicted for orchestrating the third largest Ponzi scheme in history. But Slatkin seems to have had minimal involvement in Apollo’s trading, and I have yet to uncover any evidence proving that Apollo is tied to naked short sellers or others in the network that this story intends to document. So let us give Fradd the benefit of the doubt.

Let us focus instead on the remaining seven of the ten hedge funds that held large numbers of put options immediately after the FDA’s advisory panel handed Dendreon its fantastic news, which was right at the time that Dendreon was bombarded by illegal naked short selling (phantom stock), and just before Dendreon was to experience some strange occurrences.

The managers of these seven hedge funds all know each other well. They have all worked with Michael Milken or Milken’s close associates. They include the following:

a fraudster and naked short seller who is believed to have stolen billions of dollars with help from Russian and Italian organized crime;

a trader working for a man who once managed, along with his father-in-law, the dirtiest, Mafia-linked brokerage on Wall Street.

a trader who co-founded his fund with a man who was jailed for plotting to murder Michael Milken’s famous co-conspirator, Ivan Boesky;

a man who became the “most powerful trader on the Street” after working for one of the most notorious, Mafia-linked brokerages on the Street;

an accused naked short seller who was at the center of the greatest scandal in SEC history, and is now under criminal investigation;

a fellow who once owned a fund that was charged in a massive naked short selling fraud and was later mixed up in a Mafia-connected, criminal naked short seller’s scheme to bribe agents of the FBI; and

a Russian “whiz kid” who was the top trader for a man who once worked at a notorious Mafia-linked brokerage—the same brokerage that once employed the criminal naked short seller who bribed those agents of the FBI.

Again, judging from SEC disclosures of put option holdings, these seven colorful traders (plus Fradd, whom I have yet to definitively tie to this network) were the only hedge fund managers on the planet who were placing serious bets against Dendreon after the FDA’s advisory panel voted in support of Provenge.

So let’s get to know more about these seven colorful traders–and then let’s try to surmise whether they knew about the strange events that were about to occur in the Spring of 2007, and whether those strange occurrences had anything to do with a “prominent philanthropist” named Michael Milken.

* * * CHAPTER 3 * * *

The first of the seven “colorful” hedge funds that held Dendreon put options (right when Provenge was on the fast track to FDA approval) was Bernard L. Madoff Investment Securities, managed by the Mafia-connected criminal who orchestrated a $50 billion Ponzi scheme while helping the SEC write a short selling rule that came to be known as the “Madoff Exemption.”

According to SEC filings, Madoff owned put options on 180,000 shares of Dendreon as of March 31, 2007, which was two days after the FDA’s advisory panel voted in Dendreon’s favor. That is fewer than the numbers of put options bought by the other six hedge fund managers, but again, the SEC does not require hedge funds to disclose their short selling, so we do not know whether Madoff had a larger short position in Dendreon, along with these puts.

In any case, Madoff’s bet against Dendreon was significant. Given the positive data Dendreon had released and the subsequent vote of the FDA advisory panel, the trading position was not only counterintuitive, it was also (given some strange events which occured shortly thereafter), prescient to a degree one could only describe as “improbable.”

It has been widely reported in the media that Madoff’s criminal activity was confined to his fund management business, and that this business did not execute any real trades — that Madoff merely pocketed the money of his investors, all of whom were “victims.” According to the media reports, Madoff’s market making operation was legit.

These claims may well be false. Again, the fact that Madoff was one of only ten people on the planet who owned large numbers of put options in Dendreon suggests a certain degree of foresight (especially when one understands those subsequent strange occurrences, which we will be getting to in due course). The trade was so counterintuitive, and timed so precisely to coincide with Dendreon’s triumphant news (and the brutal naked short selling attack that accompanied it), that the claim that Madoff was merely pocketing investors’ money and falsely reporting random trades seems unlikely, given how remarkable this one trade turned out to be.

Madoff had to have meditated on the Dendreon trade. He had to have had information – some reason to record a bet against Dendreon at a time when there was every reason to be optimistic for Dendreon. And if Madoff thought about making this long shot bet against Dendreon enough to report it in his SEC filings, it is likely that he did, in fact, place the bet. That is, he probably purchased those put options. If so, the theory that his Ponzi fund did not execute any trades is false.

A Deep Capture source who has seen some of Madoff’s records says that Madoff’s fund management business was, in fact, executing a great number of trades. According to the source, the fund would place buy orders, and these orders would be filled by Madoff’s market making operation, which would sell stock to the fund without first borrowing or purchasing it.

In other words, it is probably correct to say that Madoff stole a lot of his investors’ money, but he seems to have used at least some of that money to generate phantom stock. Why would he do this? There is one obvious explanation: to drive down prices, adding to his short selling profits, and contributing to the profits of his short selling friends.

It is reasonable to speculate that Madoff’s market making operation derived business from executing manipulative naked short sales for unscrupulous hedge funds. After all, remember, the SEC’s loophole allowed market makers, such as Madoff, to engage in naked short selling. Madoff had a reason for advocating for that loophole. Perhaps he knew that it would allow him to help high-paying hedge funds create married puts – the phantom stock “bullets” that market makers and hedge funds have used to obliterate stocks.

Consider also that Madoff’s prosecutors note in their case that Madoff funneled at least $250 million from his investment fund to his market making division. I can think of only three reasons for his doing so:

the money was used to buy securities — trades that weren’t executed, according to the press; or phantom stock, according to our source;

the money came from hedge funds who, far from being victims, were paying off the market maker for helping them generate phantom stock; or

the money was used to buy stock that Madoff used to cover some of his open naked short positions.

The authorities have been rather slow to provide details of Madoff’s fraud, but there is other evidence to consider. For example, Madoff’s secretary recently wrote in Vanity Fair magazine that Madoff’s stock loan operations (the division of his brokerage responsible for locating and borrowing shares to be sold short – or, more likely, responsible for not really locating or borrowing those shares) — was segregated in an area that Madoff called “the cage” – on the 17th floor of the Lipstick building.

Stock loan operations are integral parts of brokerage businesses. One would normally expect Madoff’s stock loan operations to be housed in his brokerage. But Madoff’s brokerage business was on the 14th floor of the Lipstick building, separate from “the cage” on the 17th floor, which was home to Madoff’s “Ponzi” fund management business.

Multiple reports (including a recent story in Fortune magazine) state that Madoff was maniacally secretive about the activities on the 17th floor, and kept the employees who worked there strictly isolated from visitors and other employees. This is because the 17th floor was the heart of Madoff’s criminal enterprise. The secretary’s information seems to indicate that this criminal enterprise involved both the fund management business and the stock loan cage (i.e. the division that helped manufacture phantom stock by not actually borrowing shares that were sold short).

As for Madoff’s “victims,” it is clear that some of his investors and “feeders” were to a significant extent participants in his fraud. As Madoff’s chief lieutenant, Frank DiPascali, seems prepared to testify, Madoff conspired with a few “special” clients to alter the returns that they received on their “investments.” However much the “special” clients wanted to earn in a given month, Madoff would give it to them.

DiPascali identified one particularly “special” client: Jeffry Picower, who seems to have netted around $5 billion from the Madoff scam. Picower gained some renown in the 1980s. At the time, nobody had any idea who he was or where he got his money. He was a big mystery.

Then, one day, it was learned that he was the single largest limited partner in the arbitrage fund run by Ivan Boesky, who was later jailed for being a principal co-conspirator in the stock manipulation frauds of a famous criminal.

That famous criminal is now a “prominent philanthropist,” too. And his name is Michael Milken.

* * * * * * * *

By most accounts, Madoff had just a few key “feeders”– hedge funds and individuals who raised money to “feed” his $50 billion Ponzi scheme. For some time, the press suggested that these “feeders” were “victims” of Madoff’s fraud, but in an increasing number of cases, authorities are suggesting otherwise.

A lawsuit filed by the State of Massachusetts against “feeder” fund Fairfield Greenwich makes it clear (by supplying copious transcripts of phone conversations, etc.) that Fairfield had more than an inkling of what was going on in Madoff’s shop. And on June 22, 2009, the Securities and Exchange Commission charged several Madoff “feeders” with securities fraud related to their participation in the Madoff Ponzi. One of those charged was Robert Jaffe, who was also a partner with Madoff in a brokerage called Cohmad Securities. Earlier in his career, Jaffe was found to be running money for the Anguilo brothers, the Boston dons of the Genovese Mafia family.

Madoff’s other key “feeders” have not yet been charged with wrong-doing. Perhaps, they will never be charged. But it is interesting to note that a number of them were close associates of a famous criminal and “prominent philanthropist” named Michael Milken.

One of the most important Madoff “feeders” was Rene Thierry Magon de La Villehuchet, a French aristocrat who worked on deals in the 1980s with Drexel Burnham Lambert, which was the headquarters of Milken’s junk bond and stock manipulation empire. During this time, Monsieur Rene Thierry Magon de La Villehuchet came to know not just Milken, but also Leon Black, who was the head of Drexel’s mergers and acquisitions department.

Most every account of those days suggests that Black was Milken’s closest ally at Drexel. Black argued vehemently that Drexel should not cooperate with Milken’s prosecutors and he defended Milken to the end. Today, there are few people closer to Milken than Leon Black.

After Milken’s crimes bankrupted Drexel, Black joined forces with Monsieur Rene Thierry Magon de La Villehuchet to launch an investment fund called Apollo Management. As you will recall, a certain Apollo Medical was one of the ten hedge funds that owned large numbers of put options in Dendreon. I have not yet been able to determine whether Apollo Management is affiliated with Apollo Medical. Neither Black nor Apollo Medical manager Brandon Fradd returned my phone calls seeking comment.

But we do know that Monsieur Rene Thierry Magon de La Villehuchet provided the initial capital to Leon Black’s Apollo Management. And in its early years, the French aristocrat was Apollo’s biggest fundraiser. Indeed, it is correct to say that in addition to being one of Madoff’s most important “feeders,” Monsieur Rene Thierry Magon de La Villehuchet was Milken crony Leon Black’s single most important business partner.

Unfortunately, in December 2008, soon after the Mafia-connected Madoff turned himself in to the authorities, Monsieur Rene Thierry Magon de La Villehuchet was found in his Madison Avenue office – dead.

Another of Madoff’s most important “feeders” was J. Ezra Merkin, who managed the Ariel Fund, which seems to have been designed specifically to raise money for Madoff’s fraudulent investment business. In this regard, the New York attorney general has described “Merkin’s deceit, recklessness, and breaches of fiduciary duty…”

While Merkin was “deceitfully” feeding the Madoff Ponzi, he was also a co-owner, along with Steve Feinberg, of Cerberus Capital Management, a fund named after the mythological three-headed dog that guards the gates of Hell.

Previously, Feinberg was a top trader for Michael Milken at Drexel Burnham Lambert. After Drexel, Mr. Feinberg moved (on Milken’s recommendation) to a brokerage called Gruntal & Company.

Gruntal owed its existence to the generous junk bond finance that its parent company, the Home Group, received from Michael Milken. Its options department was founded by Carl Icahn, who later became a “prominent” billionaire owing to the junk bond finance that he received from Michael Milken.

When Icahn left Gruntal, he was replaced by a Milken crony named Ron Aizer, who proceeded, on the recommendation of Milken, to hire two traders.

The first trader hired by Aizer was, according to a reliable source, investigated by the SEC for trading on inside information that he received from Milken’s operation at Drexel Burnham Lambert. This trader is now a “prominent” billionaire and the manager of a well-known hedge fund. The second trader hired by Aizer is now also a “prominent” hedge fund manager, though he is not quite a billionaire. Both of these traders play important roles in the story of Dendreon. Carl Icahn, the founder of Gruntal’s options department, has a cameo role, too.

So I will return to all three – the two former Gruntal traders and Icahn – in upcoming chapters.

* * * * * * * *

I know people who used to work at Gruntal. They are honest people who have gone beyond the call of duty to contribute to Deep Capture’s reporting. They also confirm that Gruntal’s New York operation (as opposed to some of its offices in other states) was among the more disreputable brokerages in America. As Fortune magazine once put it, Gruntal was firmly situated on the “shabby side of the Street.”

Gruntal’s senior vice president, Maurice B. Gross, was found to be running money for Thomas Gambino, a capo in the Gambino Mafia family. Another New York Gruntal trader, Samuel Israel III, later launched his own hedge fund, and in 2008, it emerged that this hedge fund was the largest Ponzi scheme in history. Israel was charged on multiple counts of fraud, and briefly faked his own suicide before handing himself over to the authorities.

Soon after, the Mafia-connected Bernard Madoff admitted to running a $50 billion Ponzi scheme, so Israel’s Ponzi scheme was no longer the largest in history. It was the second largest. The third largest Ponzi scheme, remember, was orchestrated by Reed Slatkin, the criminal who was a limited partner in Apollo Medical, which was one of those ten hedge funds that owned large numbers of put options in Dendreon.

It has been reported that Israel ran his Ponzi scheme with help from “feeders” who had ties to the Genovese Mafia family. So it is perhaps noteworthy that after he left Gruntal, and before he started his own criminal operation, Israel worked for JGM Management, a hedge fund owned by “prominent” investor Michael Steinhardt. As Steinhardt belatedly admitted a few years ago, his father, Sol “Red” Steinhardt, once worked for the Genovese Mafia family. Steinhardt Sr. spent a number of years in Sing-Sing prison after a New York state prosecutor pegged him as the “biggest Mafia fence in America.”

Ivan Boesky, was, of course, the famous co-conspirator in many of Michael Milken’s stock manipulation schemes. As noted, Boesky’s biggest investor and limited partner was Jeffry Picower, the mysterious “special” client of the Mafia-connected Bernard Madoff — who authored one of the SEC’s naked short selling loopholes, orchestrated the largest Ponzi scheme in history, and held 180,000 put options in Dendreon.

Steinhardt’s other key limited partner, Marc Rich, was eventually indicted for tax evasion and trading with Iran and Libya. He fled to Switzerland, where he has ever since lived as a fugitive from U.S. law. Rich later received a pardon from Bill Clinton for some of his crimes, but he remains in Switzerland, from where he now runs a securities and commodities trading empire.

According to the Vanity Fair article written by Bernard Madoff’s secretary, Rich was one of the last people with whom Madoff met before handing himself over to the FBI. Given that Rich avoids travel to the U.S. for fear of certain arrest (for crimes not covered by Bill Clinton’s generous pardon), it would appear that Madoff, in the days immediately preceding turning himself over to U.S. law enforcement, made time to visit Rich in Europe. Apparently, before going away for what he likely knew would be the rest of his life, Bernie Madoff had something vitally important to discuss with Rich.

Steinhardt’s third key limited partner, Marty Peretz, was later a co-founder, along with CNBC’s Jim Cramer and a certain hedge fund (which I will soon name), of TheStreet.com, a financial news website. Cramer, a former hedge fund manager, once planned to run his business out of the offices of Milken co-conspirator Ivan Boesky. When Boesky was indicted, Cramer instead ran his hedge fund out of the offices of Michael Steinhardt.

A lot of names have been thrown at the reader. But stick with me, for I think you will come to see that these relationships matter. And I think you will come to agree that most of these people –Bernard Madoff, those two Gruntal traders (whom I will soon name), Jim Cramer, Michael Steinhardt, Carl Icahn, Marty Peretz, that hedge fund manager who co-founded TheStreet.com, Michael Milken, and some folks who are tied to the Mafia – deserve prominent mention in the story of Dendreon.

* * * * * * * *

So, again, as far as we can ascertain from public records, there were ten hedge fund managers on the planet who were betting heavily against Dendreon as of March 31, 2007, shortly after the FDA advisory panel put Provenge on the fast track to approval, and during the time that Dendreon was under an unprecedented, illegal naked short selling attack, and right before Dendreon would be derailed by some strange occurrences. Seven of those ten hedge fund managers are quite “colorful,” all are part of the same network, and one of them was Bernard Madoff.

The second of the seven “colorful” hedge fund managers was…as a prelude to introducing the second hedge fund manager, it helps to understand some things about a man named Felix Sater, who is alleged (by a former business partner and other reports) to be affiliated with the world’s most murderous organized crime outfit – the Russian Mafia.

In the early 1990s, Sater (who has since changed the spelling of his name to Satter) was charged with aggravated assault after he stabbed a fellow broker in the face with the broken stem of martini glass. Soon after, he founded a brokerage called White Rock Partners.

Felix had previously worked as a trader for Gruntal & Company, the brokerage that owed its existence to generous junk bond financing from Michael Milken – the same brokerage whose options department was founded by Milken crony Carl Icahn, later replaced by Milken crony Ron Aizer, who quickly hired two Milken cronies, both of whom, we will see, figure prominently in the story of Dendreon.

In the mid-1990s, several of Gruntal’s top managers were accused of embezzling millions of dollars. The managers were indicted and Gruntal agreed to pay $6.5 million in fines – one of the stiffest penalties that had ever been levied by the Securities and Exchange Commission. Around this time, many of Gruntal’s traders moved to White Rock Partners, the firm run by Felix Sater.

A book called “The Scorpion and the Frog,” which was co-authored by a former business partner of Felix, states that there was a time when Felix (given the pseudnym Lex Tersa in the book) announced that he (Felix) might murder a man named Alain Chalem, who was the boss of Toluca Pacific, a Mafia-controlled brokerage that was then one of the most notorious naked short selling outfits on the Street. Toluca and White Rock had previously worked together, but Sater was angry that Chalem had begun to sell short a stock that Sater was trying to pump.

Fortunately, the book notes, Sater didn’t end up killing Chalem.

But not long after, several men arrived at Chalem’s New Jersey mansion. The men told Chalem to kneel down on the floor. Then the men fired several rounds of bullets – one bullet into Chalem’s chest, one bullet into Chalem’s forehead, one into Chalem’s face, and a number of bullets into each of Chalem’s ears. According to a man who was with Chalem just hours before his death, the murder was the work of the Russian Mafia.

And it involved a dispute over naked short selling.

* * * * * * * *

In the late 1990s, the FBI launched Operation Uptick, which resulted in the arrest of more than 120 Wall Street stock manipulators linked to organized crime – the biggest Mafia bust in FBI history.

That effort led to other operations and many more cases that collectively came to be known at the FBI as the “Mob on Wall Street” campaign. In one such case, prosecutors charged that Felix Sater’s White Rock Partners was tied to Russian mobsters and the Italian Mafia and had engaged in multiple stock manipulation schemes.

According to the prosecution’s case (in which Sater was named as an “unindicted co-conspirator”), the Mafia thugs who worked with White Rock included Frank Coppa, who was a capo in the Bonanno Mafia family; Edward Garafola, a soldier in the Gambino Mafia family; and Ernest Montevecchi, a soldier for the Genovese Mafia family. The prosecutors described White Rock as employing threats of physical violence and other forms of thuggery.

Nowadays, Sater is the behind-the-scenes owner of the Bayrock Group, a real estate development company. Among his 11 partners in this venture are a number of investment fund managers who are tied to Michael Milken. Most notable of Sater’s business partners is Apollo Real Estate Advisors, which is run by Leon Black.

As you will recall, Black was Milken’s closest ally at Drexel Burnham Lambert, and started Apollo Management with considerable help from Monsieur Rene Thierry Magon de La Villehuchet, who was one of the most important “feeders” to the Ponzi scheme run by the Mafia-connected Bernard Madoff (who authored the SEC’s naked short selling loophole and owned 180,000 put options in Dendreon).

In 2005, Deep Capture reporter Patrick Byrne began a crusade against the crime of naked short selling. A few months later, while working as an editor for the Columbia Journalism Review, I began work on a story about the naked short selling scandal, and started asking a lot of questions about the ties that bind various hedge funds to Michael Milken and his famous co-conspirator, Ivan Boesky.

In the fall of 2006, I received several threats and was once ambushed by three men, punched out, deposited on my doorstep, and told to stay away from Patrick Byrne. Soon after, Deep Capture reporter Patrick Byrne met with an off-shore businessman who had once worked in the world of Mafia-controlled brokerages, but had since reformed himself and begun to help with our investigation.

This businessman told Patrick that he had received a message. And the message was that the Russian Mafia was going to murder Patrick, and possibly those close to him, if Patrick did not end his crusade against naked short selling.

According to the off-shore businessman, this threat was conveyed by Felix Sater – alleged son of a top Russian Mob boss; former co-owner of the Mafia-infested White Rock Partners; and business partner of Michael Milken’s closest crony, Leon Black.

* * * * * * * *

In their case against Felix Sater’s White Rock Partners, prosecutors noted that the firm not only employed threats and had ties to the Mafia, but also manipulated stocks in close cooperation with other Mafia-affiliated brokerages. According to the prosecutors, White Rock was tied directly to two specific Mafia-affiliated brokerages – A.R. Baron and D.H. Blair.

Again, I apologize for throwing so many names at the reader, but it is worth remembering this name: D.H. Blair.

D.H. Blair was perhaps the dirtiest operator on Wall Street. In various indictments and investigations, the SEC and the U.S. Attorney’s Office in Manhattan determined that D.H. Blair was at the center of a network of Mafia-affiliated brokerages that included not only Felix Sater’s White Rock Partners, but also Toluca Pacific (the brokerage run by the naked short seller who had bullets shot into both of his ears) and notorious Mafia outfits such as A.S. Goldmen, J.W. Barclay, F.N. Wolf, Stratton Oakmont, Parliament Hill Capital, J.T. Moran, and R.H. Damon.

The founder of D.H. Blair was a man named J. Morton Davis. In his heyday, Davis was known as a “prominent” investor and the “king of penny stocks.” He has yet to be convicted of a crime. But given the subsequent revelations about his firm, it is not surprising that some people now call him the “king of stock fraud.” D.H. Blair was eventually indicted on 173 counts of securities fraud.

In 1998, as the FBI was closing in, D.H. Blair went out of business. In 2000, not only was the firm itself indicted on 173 counts, but some of its top executives pled guilty to additional counts of securities fraud. These included two D.H. Blair vice chairmen — Alan Stahler and Kalman Renov — both of whom were sons-in-law of Davis, the founder.

But by then, the Milken boys had scooted. Another top executive of D.H. Blair also avoided prosecution. His name was Lindsay Rosenwald.

Rosenwald was the third son-in-law of D.H. Blair’s founder, J. Morton Davis – the so-called “king of stock fraud.”

And in March 2007, Rosenwald was the second of those seven “colorful” fund managers who were positioned to profit from the demise of Dendreon, a little company with a promising treatment for prostate cancer.

* * * * * * * *

Lindsay Rosenwald may be the son-in-law of “the king of stock fraud.” And he was once the vice chairman of D.H. Blair, a firm affiliated with the Mafia – a firm that was run by two former top lieutenants of Michael Milken before it found itself at the center of one of the biggest Mafia investigations in the history of the FBI and on the business end of a 173-count federal indictment.

But never mind — Mr. Rosenwald is now a “prominent investor.” In fact, he is not just a “prominent investor”— he is one of America’s biggest biotech investors, if not the biggest biotech investor.

D.H. Blair was known for investing in biotech companies, pumping their stocks, and then short selling them out of existence. Many of those companies were frauds that were nowhere close to producing any medicines.

Rosenwald is more sophisticated. He invests in companies that have real scientists experimenting with real drugs. But in an overwhelming number of cases, these companies prove to have nothing to bring to market. The companies churn out lots of press releases heralding medical breakthroughs, and their stock prices soar. But ultimately they announce that, in fact, their experiments have failed. By the time the bad news hits, Rosenwald will typically have sold all of his stock.

While Rosenwald promotes medical companies that are nowhere near delivering real medicines, hedge funds affiliated with Rosenwald sometimes bet heavily against competing companies that do have medicines. The hope seems to be that the demise of competing companies with promising treatments will increase the market value of Rosenwald’s not-so-promising companies.

That may partly explain Dendreon’s tribulations.

With the exception of big pharma, there are only a few biotech firms that have received significant publicity for developing treatments for prostate cancer. One of these companies, Cougar Biotechnology, was, until last month, controlled by this Lindsay Rosenwald, who aside from running D.H. Blair in cahoots with people tied to the Mafia and Milken’s former national sales managers, is also a close friend of Milken himself. While Rosenwald was in control, Cougar Biotechnology’s scientific advisory board included four individuals affiliated with Milken’s Prostate Cancer Foundation – Dr. Eric Small, Dr. Michael Carducci, Dr. Philip Kantoff, and Dr. Howard Scher.

Cougar’s prostate cancer treatment was and is in the early stages of development. It is nowhere close to receiving FDA approval. I believe that the scientists and doctors whom Cougar hired to conduct trials into its treatment are earnest about their work. But judging from Rosenwald’s record, it is possible that Cougar’s business model was not to bring a treatment to market – but rather to exaggerate the importance of data obtained in trials, pump the stock, then sell before the trials proved that the drug did not work.

This plan would benefit from forming a scientific advisory board comprised, with help from Milken’s “philanthropy,” of illustrious medical scientists who might not understand how the stock market game is played.

In any case, Cougar has been promoted (by Milken’s Prostate Cancer Foundation and Cougar) as having a treatment that is a preferred alternative to Dendreon’s. Any Dendreon achievement would negatively affect Cougar’s stock price. Which might explain why a Rosenwald-affiliated hedge fund mauled Dendreon in the days before and after the FDA’s advisory panel voted that Dendreon’s promising treatment should be administered to patients.

As of the end of March, 2007, a hedge fund called Perceptive Advisors held more than 600,000 put options in Dendreon. Perceptive Advisors is run by a man named Joseph Edelman. As of 2008, Edelman was still identifying himself (when donating to political campaigns, for example) as an employee of Paramount Capital, which was founded by Rosenwald. To summarize: Lindsay Rosenwald founded Paramount Capital, which had an employee named Joseph Edelman, who was simultaneously managing Perceptive Advisors, so we can reasonably surmise that Perceptive Advisors is an adjunct of the Rosenwald biotech trading empire.

SEC filings show that at the end of March, 2007, Perceptive Advisors not only held puts, but also held call options on a whopping 6.2 million shares of Dendreon. Call options are usually a bet that a stock will increase in value. But don’t let this fool you.

According to brokers familiar with his strategy, Edelman worked like this: He bought massive numbers of call options at rock-bottom strike prices. When Dendreon’s stock began to soar in value, Edelman exercised the calls, at which point his broker had to sell him an equally massive number of shares at the rock bottom price. These Edelman would quickly dump, flooding the market with massive selling volume and putting downward pressure on the stock. Meanwhile, according to the brokers, Edelman sold short massive amounts of Dendreon’s stock, profiting from all the selling volume.

I called Edelman and asked him if he was short selling Dendreon while flooding the market with stock from his call options. He did not deny that he was short selling the company, but he hung up on me before I could ask any more questions.

In any case, the strategy I describe above is technically legal. It’s legal so long as Edelman was not colluding with other hedge fund managers, all of whom happened to be generating massive selling volume at precisely the same time. And it’s legal as long as he was not engaged in naked short selling, or, equivalently, conspiring with a market maker to create married puts to synthesize those phantom stock “bullets” that unscrupulous hedge funds spray into the market to drive down stock prices.

As to whether Edelman was in fact either directly naked short selling, or indirectly generating phantom stock by colluding with his option market maker, the brokers are staying mum. The SEC is unlikely to say much either.

As far as the SEC is concerned, remember, illegal naked short selling is a big secret – a “proprietary trading strategy.”

* * * CHAPTER 4 * * *

D.H. Blair, the Mafia-affiliated brokerage founded by Lindsay Rosenwald’s father-in-law (the so-called “king of stock fraud”) and managed for some time by Rosenwald and Michael Milken’s former national sales manager, received much of its finance from the family of a man named Zev Wolfson. Mr. Wolfson was also closely involved with another Mafia-affiliated brokerage, A.R. Baron.

As you will recall, D.H. Blair and A.R. Baron featured prominently in the prosecution’s case against White Rock Partners, the firm that was founded by Felix Sater. Felix Sater, remember, is the alleged son of a top Russian Mob boss. And he previously worked as a trader for Gruntal & Company, a Mafia-affiliated brokerage that was stacked with cronies of Michael Milken.

You will remember that Sater, the fellow alleged to have blood ties to the Russian Mafia, is currently a business partner of Milken crony Leon Black. You will also recall that Sater is allegedly the man who sent a message that the Mafia would murder Deep Capture reporter Patrick Byrne if he continued his crusade against illegal naked short selling. And Sater is the same guy whose naked short selling colleague, Alain Chalem, had his ears and face shredded with bullets.

Wolfson, meanwhile, was involved in another “colorful” brokerage, Pond Equities. In 2006, the SEC filed civil charges accusing Pond Equities of participating in a massive naked short selling fraud.

Aside from funding Mafia-affiliated brokerages, some of which were closely tied to Michael Milken, Wolfson was also the key early investor in funds controlled by a number of Milken’s more “prominent” cronies. For example, Wolfson was an early benefactor of a “prominent billionaire” named Saul Steinberg.

In the 1980s, Steinberg built a company called Reliance Insurance with generous junk bond financing from Milken. Reliance, in turn, became one of the Milken-aligned financial conglomerates that regularly bought the junk bonds that Milken was selling for his other cronies. In other words, Steinberg was a key player in Milken’s junk bond merry-go-round – one of history’s great Ponzi schemes. Eventually, Steinberg looted and bankrupted Reliance, though he has never been charged with any crime.

Today, Steinberg is a founding partner of Wisdom Tree Investments, which is managed by Steinberg’s son, Jono. Jono is married to CNBC’s Maria Bartiromo, also known as the “Money Honey.” The Money Honey’s father is the former owner of a Brooklyn catering outfit and private club called the Rex Manor. Residents of Brooklyn know the Rex Manor as a popular hang-out for members of the Bonanno organized crime family (a fact that is merely of biographical interest and not meant to imply that Mr. Bartiromo is tied to the Mob).

The other founding partner of Wisdom Tree Investments is Michael Steinhardt, who is one of the nation’s most “prominent” hedge fund managers. As was noted in Chapter 3, Steinhardt’s father, Sol “Red” Steinhardt, worked for the Genovese organized crime family and spent a number of years in Sing-Sing prison after a New York prosecutor pegged him as “the biggest Mafia fence in America.” According to Steinhardt himself, the key limited partners in Steinhardt Jr.’s first hedge fund were the Genovese Mafia and three “prominent investors” – Marty Peretz, Marc Rich, and Ivan Boesky.

Ivan Boesky, we know, was famously indicted in the 1980s for participating in various stock manipulation schemes with Michael Milken. Also convicted for his participation in these schemes was a man named John Mulheren, who had run an arbitrage fund largely financed by Zev Wolfson (the fellow who also financed Saul Steinberg, the Mafia-affiliated brokerages tied to Milken, and other Milken cronies who will be introduced shortly).

Although Mulheren’s conviction for manipulating stocks was ultimately reversed on appeal, there was a time when he believed that Boesky might squeal on him and his friend, Michael Milken. So one day Mulheren loaded his car with weaponry and set out to assassinate Boesky. Fortunately, the police arrested Mulheren before he could commit the murder.

According to a famous book called “Den of Thieves,” written by Pulitzer Prize winning author James Stewart, Mulheren spent most of his time in jail conversing with Anthony “Fat Tony” Salerno, who was then the top boss of the Genovese Mafia family. In addition, Scotland Yard has linked Salerno to Steven Wynn, a Las Vegas casino operator. Wynn is Milken’s closest friend, according to Milken, and Wynn’s wife, Elaine, sits on the board of Milken’s Prostate Cancer Foundation, which, we will see, seems to have little interest in promoting effective treatments for prostate cancer, and probably played a role in derailing Dendreon.

After he got out of jail, Mulheren co-founded a hedge fund called Millennium Partners, then promptly died of an early heart attack, leaving his co-founder, Izzy Englander, to continue operating the fund. Izzy Englander secured much of his investment capital from not just Zev Wolfson, but also the Belzberg brothers – William, Sam, and Hymie. Executives at an investment firm called the Bache Group, citing U.S. Customs Service reports, once accused the Belzberg’s of having ties to organized crime.

As we know, only ten hedge funds on the planet owned large numbers of Dendreon put options at the end of March 2007. In other words, after Dendreon received its fantastic news that it an FDA advisory panel had voted in its favor, only ten hedge funds were maintaining long-shot bets against Dendreon (long-shot bets that would, in time, prove strangely prescient). At least seven of those hedge funds are quite “colorful” – and all seven are part of the same network.

So far we have discussed two of the seven “colorful” fund managers who stood to profit from the demise of Dendreon. Those two are Bernie Madoff, the $50 billion Ponzi schemer and naked short seller, and Lindsay Rosenwald, formerly a manager of the Wolfson-financed D.H. Blair, which was founded by Rosenwald’s father-in-law (the “king of stock fraud”). Both D.H. Blair and Madoff had ties to organized crime. Both worked intimately with Michael Milken or his closest associates.

So perhaps it is no surprise that the third hedge fund that was betting heavily against Dendreon in March 2007 was Millennium Management, co-founded by John Mulheren–jailhouse confidante of “Fat Tony” Salerno (the Genovese Mafia boss); co-conspirator of Michael Milken; would-be murderer of Ivan Boesky; and recipient, like other Milken cronies and a number of Mafia-affiliated brokerages; of key finance from Zev Wolfson.

Altogether, Millennium owned put options on 800,000 shares of Dendreon at the end of March 2007 – just after the company’s prostate cancer treatment was endorsed by an FDA advisory panel; right at the time that Dendreon came under a blistering illegal naked short selling attack; and just before Dendreon was to experience some strange occurrences.

* * * * * * * *

Let us return to Zev Wolfson — and because there are readers who might have a hard time following this tangled web, permit me to repeat a few facts.

As we know, Wolfson funded D.H. Blair, the Mafia-affiliated brokerage which became the target of a 173 count indictment, saw two vice chairmen plead guilty to securities fraud, had a president (Richard Maio) who was once Michael Milken’s national sales manager, and had another vice chairman (the son-in-law of the “king of stock fraud”) who is now one of America’s biggest biotech traders and an adversary of Dendreon.

We also know that Wolfson was the key early investor in funds run by Milken cronies Saul Steinberg (partner of Michael Steinhardt, whose father worked for the Genovese family as the “biggest Mafia fence in America”) and John Mulheren, who spent his jail-time conversing with Genovese boss Anthony “Fat Tony” Salerno, and then co-founded Millennium Management, which later also became an adversary of Dendreon.

In addition, Wolfson was a key early investor in a fund managed by “prominent billionaire” Carl Icahn.

Before he became a “prominent” billionaire, Icahn, remember, founded the options trading department at a firm called Gruntal & Company, which owed its existence to the generous finance that the criminal and future “philanthropist” Michael Milken gave to its parent company, the Home Group. Like Steinberg’s Reliance Insurance, the Home Group was a key player in Milken’s junk bond Ponzi scheme.

As mentioned, Icahn was replaced at Gruntal by Milken crony Ron Aizer, who proceeded to hire as traders two associates of Michael Milken. According to a reliable source, one of those traders was investigated for trading on inside information provided by Milken’s operation at Drexel Burnham Lambert. Both traders are now “prominent” hedge fund managers, and both are important characters in the story of Dendreon, so I promise to name them soon.

As also mentioned, Gruntal was caught embezzling millions of dollars. One of its traders was found to be running money for the Gambino Mafia family. And a large number of its traders went on to work for White Rock Partners, the Mafia firm that was indicted for manipulating stocks with help from the Mafia-affiliated D.H. Blair, founded by the father-in-law of Lindsay Rosenwald, who was one of those seven “colorful” hedge fund managers who stood to profit from the demise of Dendreon.

Recall that White Rock also did business with the naked short seller Alain Chalem. Recall also that White Rock’s co-founder has said that he once worried that White Rock’s other co-founder, Felix Sater, might murder Chalem. As we know, Chalem eventually was assassinated in his New Jersey mansion (which does not, of course, prove that the fears White Rock’s co-founder were correct).

When Icahn left Gruntal, he began a career in “greenmailing” – acquiring large amounts of companies’ stock and threatening to make problems if the companies didn’t buy back the stock at a premium. His greenmailing (a.k.a. blackmailing) exploits were made possible by generous junk bond finance handed to him by Michael Milken. By mostaccounts, Icahn owes his phenomenal wealth and power to two people – Zev Wolfson (financier to multiple Mafia-affiliated brokerages) and Michael Milken, who is (as should be clear by this point) on close terms with many Mafia-connected investors, and is now considered a “prominent philanthropist.”

Given his association with Milken and Wolfson, it is perhaps predictable that Icahn has relationships with other Mafia-connected goons as well. For example, Icahn once employed a man named Allen Barry Witz, who was later implicated by the U.S. government in a Mafia-run stock manipulation fraud. As it happens, Witz also did business with Alain Chalem, the Mafia-connected naked short seller who was assassinated in New Jersey – his head, face and ears filled with bullets.

According to variousreports, Icahn’s former employee, Barry Witz, was one of the last people, other than the killers, to see Chalem alive.

* * * * * * * *

Milken crony Carl Icahn has had multiple brushes with naked short selling. For example, Icahn was the man behind Ladenburg Thalmann, an investment bank that financed many companies through so-called PIPEs – private investments in public equities.

The PIPEs industry is rife with abuse (See Forbes magazine’s story, “Sewer PIPEs,” which describes some of the industry’s ties to the Mafia). Since PIPEs dilute equity, a company that does a PIPEs deal will typically see its stock fall in value. To capitalize on this, hedge funds affiliated with the PIPEs investor (i.e. with the company’s supposed benefactor) will sometimes illegally naked short the company before and after the PIPEs deal is announced. Often, this naked short selling sends the stock into a “death spiral,” and the company is put out of business.

In one famous case, Icahn’s Ladenburg Thalmann was hired to broker a PIPEs deal for a small software firm called Sedona Corporation. In this capacity, Ladenburg introduced Sedona to a hedge fund called Rhino Advisors, which in turn brought in a hedge fund called AMRO International. According to prosecutors who later charged Rhino with stock manipulation, as soon as AMRO and Sedona entered into their PIPEs deal, Rhino’s owner Andreas Badian, instructed his traders to naked short Sedona with “unbridled aggression.” Rhino’s other owner, Thomas Badian, is now a fugitive from the law living in Austria.

According to the SEC, Rhino’s naked short selling was conducted in collaboration with Pond Equities (also known as Pond Securities), which was financed by Zev Wolfson, the fellow who also financed all those Milken cronies, including Icahn and the folks at the Mafia-affiliated D.H. Blair.

Most of Rhino’s phantom stock was processed through a giant brokerage called Refco Securities, which was later found to be hiding more than $400 million worth of liabilities in off-balance sheet entities. As Deep Capture reporter Judd Bagley detailed in a recent video (click here to watch), those liabilities were likely related to Refco’s rampant naked short selling.

In a series of stories for The Deal, a financial news magazine, reporter Stacy Mosher determined that Amro International had provided PIPEs financing to over sixty companies, many of them biotech firms. At least 29 of those deals involved Carl Icahn’s Ladenburg Thalmann. Soon after announcing their PIPEs deals, every one of those 29 companies were hit with unbridled naked short selling. Every one of those 29 companies saw their stocks go into “death spirals.” And nearly every one of them quickly went out of business.

Icahn is not the most famous player in the world of PIPEs. That accolade belongs to another of Milken and Wolfson’s charges — Lindsay Rosenwald, one of those seven “colorful” hedge fund managers who stood to profit from the demise of Dendreon.

Rosenwald worked for Ladenberg Thalmann before joining his father-in-law (the “king of stock fraud”) at D.H. Blair, the Mafia-affiliated brokerage whose president was Michael Milken’s former national sales manager. In addition to financing medical companies with no medicines, Rosenwald’s Paramount Capital has done some PIPEs deals with companies that did, indeed, have promising medicines. Many of those companies are now gone — drowned by tsunamis of phantom stock.

* * * * * * * *

I promised to return to this: When Icahn left Gruntal, he was replaced by Milken crony Ron Aizer, who proceeded to hire two traders who are cronies of Michael Milken.

The first trader hired at Gruntal by Aizer was a man named Steve Cohen, who later founded a hedge fund called SAC Capital. Cohen has been described (by BusinessWeek magazine and others) as “the most powerful trader on Wall Street.”

In an upcoming chapter, I’ll name the second trader hired by Aizer. Soon after that trader was hired, Cohen was joined at Gruntal by Stephen Feinberg, who had previously been a top trader for Milken’s operation at Drexel Burnham, and now runs Cerberus Capital Management, which was, until recently, co-owned by J. Ezra Merkin, one of the most important “feeders” to Bernard Madoff’s Mafia-connected $50 billion Ponzi scheme.

While at Gruntal, Cohen grew closer to Milken, and came to be on especially good terms with one of Milken’s top employees, Bruce Newberg, who was later implicated in Milken’s stock manipulation schemes. A reliable source has told Deep Capture that the SEC once investigated Cohen for allegedly trading on inside information provided to him by Milken’s staff at Drexel, Burnham, Lambert.

Nowadays, Cohen is known for demanding strict loyalty from his co-workers, past and present. Some say that these demands border on paranoia (Cohen’s employees are required to sign non-disclosure agreements swearing them to absolute secrecy – for a lifetime), but many of Cohen’s colleagues have benefited. Cohen’s former employees often move to new hedge funds that are in actuality satellites of Cohen’s powerful trading empire.

Sometimes the hedge funds that are staffed by Cohen’s former employees are initially or wholly financed by Cohen himself. Other times Cohen and the hedge funds staffed by his former employees merely trade in tandem – betting for or against the same stocks and precisely the same time. It is fair to assume that, collectively, Cohen, his former employees, and others in his network (traders who are tied to Michael Milken or his close associates) have enough fire power to move share prices.

In the 1990s, Cohen’s SAC Capital sometimes bought stocks that were being promoted by D.H. Blair, the Mafia-affiliated brokerage that figured prominently in the prosecution’s case against White Rock Partners, whose traders were mostly Cohen’s former co-workers at Gruntal. Cohen would hold these D.H. Blair stocks even when they had no revenues and had been delisted from stock exchanges. Generally, these kinds of stocks were held by only two sorts of investors – little old ladies who’d been bamboozled by D.H. Blair, and stock manipulators. But who knows, maybe Cohen did the math and figured they were the next big things.

At any rate, Cohen seems to have had some sort of relationship with the Mafia-affiliated D.H. Blair. But D.H. Blair is gone. In its place, we have Paramount Capital, run by Lindsay Rosenwald, the son-in-law of the “fraud king” who founded D.H. Blair.

One employee of Paramount Capital was Joseph Edelman, who, remember, was simultaneously running one of the seven “colorful” hedge funds that was betting big against Dendreon. Meanwhile, Rosenwald was the controlling shareholder in Cougar Biotechnology, which was promoted (by Milken’s Prostate Cancer Foundation) as having a promising treatment for prostate cancer, even though that treatment was (and is) largely untested and years away from recieving FDA approval.

Another employee of Rosenwald’s Paramount Capital was a man named David J. Kellman. Mr. Kellman was Paramount Capital’s vice president. Prior to becoming the vice president of Paramount Capital, the hedge fund owned by Lindsay Rosenwald, formerly of the Mafia-connected D.H. Blair, Kellman was a top trader for Steve Cohen’s SAC Capital.

I assume that Steven Cohen has been as diligent about maintaining his relationship with Kellman as he has been with all his former employees (a diligence that some describe as “maniacal”). Presumably Cohen also stays in touch with the folks at Millennium Management, the fund that was co-founded by the fellow who sought to assassinate Ivan Boesky, and later became one of the seven “colorful” hedge funds that owned large numbers of put options in Dendreon.

Over the years, Millennium has employed a number of Cohen’s former traders, including Edmund Debler and Steve Lisi, who ran Millennium’s healthcare trading until 2005, when they set up their own fund, which no doubt served as another satellite of the Cohen empire.

Millennium is a highly secretive fund, so it is difficult to know which of its employees were responsible for its Dendreon trades, but perhaps its current healthcare team, like its previous one, are colleagues of Mr. Cohen. We do know that Millennium has hired a new vice president. His name is Hanming Rao. And he was previously a top trader for Cohen’s SAC Capital.

Millennium, Paramount, Steve Cohen and others in this network often take similar positions in the same stocks. Many of those stocks have been pummeled by illegal naked short selling.

So it should not surprise that Cohen is the fourth of those seven “colorful” hedge fund managers (the other three being Millennium’s Izzy Englander; Joseph Edelman of Paramount and Perceptive Advisors; and Bernard Madoff) who happened to have the foresight to hold large numbers of put options in Dendreon at the end of March, 2007, right at the time when Dendreon was hit with an unprecedented wave of illegal naked short selling (phantom stock).

Cohen’s lesser known hedge fund, Sigma Capital, held put options on 750,000 shares of Dendreon at the end of March 2007. Another of Cohen’s lesser known hedge funds, JL Advisors, owned 1.3 million shares of Dendreon as of the end of 2006. These shares were dumped sometime before March 31, 2007, contributing to the selling volume that would be created by Joseph Edelman dumping more than 6 million Dendreon shares that he’d recieved by exercising call options — and by the simultaneous appearance in the marketplace of at least 9 million more phantom shares, the result of rampant naked short selling which the SEC decries as illegal, but refuses to address, except to say that naked short selling is a big secret – a “proprietary trading strategy.”

* * * CHAPTER 5 * * *

“SELL! SELL! SELL!” shouted Jim Cramer on March 28, 2007.

The CNBC “journalist” assured his viewers that the FDA advisory panel would vote that Dendreon’s treatment for prostate cancer was neither safe nor effective (notwithstanding the fact that the FDA had given the treatment “priority review” status because Provenge had shown strong trial results and was destined for critically ill patients).

But Cramer, again drawing upon his vast medical expertise, continued to insist that Provenge remained unlikely to gain FDA approval.

By this time, a number of bloggers and stock market observers had noted that Cramer, a former hedge fund manager, had recently made a video available to a limited number of high-paying subscribers to his financial news website, TheStreet.com. In this video, Cramer advised his viewers – mostly Wall Street operators — to illegally drive down stock prices.

“Maybe you need $10 million capital to knock [a stock] down,” Cramer had said. “It’s a fun game and it’s a lucrative game…By the way, no one else in the world would ever admit that, but I don’t care…Now, you can’t foment…You can’t create yourself an impression that a stock’s down. But you do it anyway because the SEC doesn’t understand it…This is just actually blatantly illegal…But I think it’s really important to foment…You get [the CNBC reporter]…talking about it as if there’s something wrong [with the stock]…Then you would call The Wall Street Journal and get the bozo reporter…if you’re not doing it maybe you shouldn’t be in the game.”

The bloggers and observers who pointed to this video as evidence of Cramer’s skulduggery also noted that Cramer had once planned to run his hedge fund out of the offices of Ivan Boesky, the famous co-conspirator of the criminal stock manipulator Michael Milken. When Boesky was indicted, Cramer instead went to work with Michael Steinhardt, the Boesky-Milken crony and “prominent” hedge fund manager whose father was the “biggest Mafia fence in America” and who was financier for the fugitive billionaire Marc Rich, for whom Steinhardt later arranged a pardon from Bill Clinton.

By 2007, I had (while working as an editor for the Columbia Journalism Review) spent close to a year studying the work of Cramer and a clique of influential journalists, most of whom had previously worked in high-level positions for Cramer’s website, TheStreet.com. I had discovered that the existence of short-side stock manipulation was denied by these journalists (including Cramer, when he was communicating to general audiences, as opposed to when he was explaining to select groups of Wall Street operators how to do the thing he was publicly saying does not exist).

The journalists were especially keen to whitewash the crime of naked short selling, and given the threat that this crime posed to so many companies and to the very stability of the financial system, it seemed to me that these journalists were engaged in a cover-up of immense proportions.

I had also discovered that these journalists routinely reported negative stories that contained bias, falsehoods, and well-timed “mistakes.” The vast majority of these stories were sourced from one particular network of hedge fund managers and miscreants. Invariably, these stories were about public companies that the hedge fund managers had sold short. And, invariably, these stories were aired right at the time that the target companies were getting bombarded with phantom stock.

Moreover, most of the hedge funds and miscreants in this network seemed, like Jim Cramer, to be connected in important ways to the criminals Michael Milken and Ivan Boesky, or their close associates. One of them was David Rocker.

Last year, Rocker’s hedge fund, Copper River (previously known as Rocker Partners), was shut down. Soon after, Carol Remond, a Dow Jones Newswires journalist who had close ties to Rocker, revealed that Rocker’s most important trading strategy had been to abuse the options market maker exemption allowing market makers to engage in naked short selling (see “Carol Remond Tells a Joke She Doesn’t Get” for details) .

According to Remond, when the SEC closed this loophole, making it more difficult for Rocker Partners/Copper River to work with option market makers to manufacture phantom stock, the hedge fund went out of business. What she left unexplained, however, was that such exploitation was illegal. Therefore, Dow Jones reporter Carol Remond was in fact bemoaning the tragedy that a hedge fund had to close because it was not able to break the law anymore.

Rocker had previously worked as a top trader for Michael Steinhardt, the Boesky and Genovese Mafia crony whose offices had also housed Jim Cramer’s hedge fund. In later years, Rocker became the largest outside shareholder in Cramer’s financial news website, TheStreet.com.

In 2006, staff at the Securities and Exchange Commission suspected that Rocker and other hedge funds in his network were working with an “independent” financial research shop called Gradient Analytics and a select group of journalists to disseminate false information in order to drive down stock prices. The SEC issued subpoenas to Rocker, Gradient, TheStreet.com, Jim Cramer, Herb Greenberg (a founding editor of TheStreet.com who was then working for MarketWatch.com and CNBC), and that Dow Jones reporter, Carol Remond.

In response, Cramer famously vandalized his subpoena on live television. Other journalists (most of them tied to Cramer) went berserk, claiming that Rocker had done no wrong and the SEC’s subpoenas had violated the media’s first amendment right to free speech. Soon after, the SEC said it would not enforce the subpoenas it had issued to journalists. And a year later, the commission dropped its investigation of Gradient and Rocker.

In May of 2006, shortly after the SEC announced that it would not enforce its subpoenas, a recently dismissed SEC attorney named Gary Aguirre wrote an eye-popping letter to the United States Congress in which he stated that he had led an SEC investigation into allegations of rampant naked short selling and insider trading at a hedge fund called Pequot Capital.

Aguirre said that his rank-and-file colleagues at the SEC believed that Pequot’s naked short selling had the potential to “seriously injure the financial markets,” but before he could complete his investigation, Aguirre’s superiors at the SEC, captured by powerful Wall Street interests, had fired him for political reasons.

Since then, a U.S. Congressional Committee has investigated and issued a lengthy report noting that there seemed to be evidence that Pequot was indeed engaged in “stock manipulation” (naked short selling). As for the SEC’s failure to fully investigate Aguirre’s allegations, the Congressional Committee concluded that the “picture is colored with overtones of a possible cover-up.”

The SEC inspector general also issued a report that backed up all of Aguirre’s claims.

Late in 2008, the SEC re-opened its investigation into Pequot Capital. And in May, 2009, Pequot manager Art Samberg shut down the fund, noting that the investigations had made the “situation increasingly untenable for the firm and for me.”

But from what is known publicly, the SEC is only looking into insider trading at Pequot. As for Aguirre’s investigation into Pequot’s alleged naked short selling – the crime that had the potential to “seriously injure the financial markets”—the SEC has said nothing.

Remember, as far as the SEC is concerned, illegal naked short selling is a big secret – “proprietary trading strategies.”

At any rate, it is worth noting that Cramer’s financial news website, TheStreet.com, had several founding partners. One was Cramer. Another was Marty Peretz, the Milken-Boesky crony who was–along with Marc Rich, Boesky, and the Genovese Mafia—a key limited partner of Michael Steinhardt (the fellow who gave Rocker his start and also incubated Cramer’s hedge fund).

A third founding partner of TheStreet.com was famously alleged to have engaged in rampant illegal naked short selling, just as David Rocker, once the largest outside shareholder of TheStreet.com, was reported (by Dow Jones reporter Carol Remond, unwittingly) to have engaged in rampant illegal naked short selling in cahoots with options market makers.

The name of this third founding partner of Cramer’s website, TheStreet.com, was…Pequot Capital, the hedge fund whose alleged naked short selling and insider trading were the targets of Gary Aguirre’s SEC investigation — the investigation that got quashed, leading to one of the greatest scandals in SEC history.

So it goes almost without saying that Pequot Capital was the fifth of seven “colorful” hedge funds that held large numbers of put options in Dendreon at the end of March, 2007 – right at the time when Cramer was shouting “SELL! SELL! SELL!” and criminal naked short sellers were flooding the market with at least 9 million phantom Dendreon shares.

* * * * * * * *

In addition to Cramer’s rants, there were other indications that Dendreon might be in the sights of some powerful players, and might therefore be in trouble – despite the fact that Provenge, its treatment for prostate cancer, seemed to be on the fast track to FDA approval.

On March 22, 2007, CNBC’s Mike Huckman wrote in a blog that he remembered “sitting at a table at a rare Dendreon analyst meeting a few years ago and someone from a Connecticut hedge fund leaned over and whispered in my ear, ‘It [Provenge] doesn’t work.’” Huckman made no indication of questioning whether the hedge fund might have had a motive for saying that.

There were odd mutterings from other quarters as well. On the day before the FDA’s advisory panel met to vote on Provenge, Matthew Herper of Forbes magazine published an article casting doubts on Dendreon’s prospects. He wrote that “researchers, statisticians and Wall Street analysts are fiercely debating whether there is enough data about [Dendreon’s] radical new treatment.”

In fact, there was no “fierce” debate at all. For most Wall Street analysts, the calculation was rather simple. Given that Dendreon’s trials had shown that Provenge was safe, and given that the treatment was destined for end-stage patients (hence its “priority review” status), the advisory panel was likely to vote in its favor. In 97% of all cases, the FDA had followed the recommendations of its advisory panels. And when FDA advisory panels recommended approval for drugs destined for dying patients, the FDA had accepted its panels’ recommendations 100% of the time.

When the FDA approved treatments, the companies that developed them almost always saw their stock prices go up. So from the perspective of most Wall Street analysts, the future for Dendreon looked bright.

As for those “researchers and statisticians,” most agreed that Provenge was not only safe, but also effective. However, a small number of researchers and statisticians were, along with the hedge funds, whispering in reporters’ ears. They were saying that Provenge doesn’t work.

But there were excellent reasons to doubt the words of the researchers who were critical of Provenge. And, as we will see, the most prominent of them were preparing (with the possible connivance of a criminal “philanthropist” named Michael Milken and seven “colorful” hedge fund managers) to cash in on one of the stranger occurrences in the FDA’s 80 years of existence.

* * * CHAPTER 6 * * *

When the FDA’s advisory panel voted in favor of Provenge, most Wall Street research analysts were predicting a bright future for Dendreon. But as naked short sellers piled on with ever increasing gusto, hedge fund managers continued to whisper in reporters’ ears. And two Wall Street analysts did more than whisper – they shouted, day after day, that Dendreon’s treatment for prostate cancer was doomed.

One of these analysts is named Jonathan Aschoff, and he works for a financial research outfit called Brean Murray Carret & Co. The day after the advisory panel vote, in an interview with Reuters, Aschoff made the long-shot prediction that the FDA would not approve Provenge, but would instead ask Dendreon to supply additional data showing that the treatment was safe and effective–a process that could take years. Soon after, Aschoff told othermediaoutlets that the FDA would set a “dangerous double standard” by approving Provenge because the treatment “did not meet its primary goal in two Phase III trials.”

During the first days of April 2007, Aschoff was everywhere, continuously repeating this notion that the FDA would set a “dangerous double standard” by approving Provenge. On April 9, Aschoff reiterated his “sell” rating for Dendreon, setting a target for the stock at a mere $1.50, which implied that the stock would lose more than 90 percent of its value by the end of the year. Reuters, Associated Press, CNBC and other media dutifully reported Aschoff’s comments as though they shed light on the merits of Dendreon’s prostate cancer treatment.

Aschoff’s performance raises a few basic questions. The first is, how did a Wall Street analyst know that it would be “dangerous” to approve a medical treatment? It is an odd day, indeed, when the media turns to Wall Street for wisdom on matters of science and health.

The second question is, why was Aschoff so confident that the FDA would not approve Provenge? Given that the FDA had followed its advisory panels’ decisions in 97% of cases, and in 100% of cases involving drugs for dying patients, Aschoff’s prediction seemed rather far out. What did he know that the rest of the world did not know?

The third question is, who is Jonathan Aschoff?

* * * * * * * *

In 2003 – back when journalists still occasionally investigated stories, rather than parroting whatever hedge funds and Wall Street analysts whispered in their ears – The Wall Street Journal won a Pulitzer Prize for a story that nailed Jonathan Aschoff for being a fraud.

According to the Journal, Aschoff often impersonated doctors in order to acquire inside information on the status of drug trials underway at his target companies. A certain Dr. Cunningham, who worked at a cancer center in Dallas, told the Journal that he initially believed that Aschoff was a doctor. But he discovered that he was dealing with a fraud when he mentioned to Aschoff that an experimental treatment had caused some reduction of the “lymphadenopathy.”

“What’s that?” asked Aschoff. He didn’t have a clue, even though “lymphadenopathy” is a common medical term. It means, “swollen lymph nodes.”

Aschoff was ultimately sanctioned by the SEC for his fraudulent efforts to obtain insider information.

Nonetheless, some years later, the Associated Press, Reuters, and other media outfits were willing to believe that Aschoff knew enough about medicine to be quoted as a reliable source – a source who had, for some reason, concluded that Dendreon’s treatment for prostate cancer was “dangerous.”

What reason did Aschoff have for reaching that conclusion?

* * * * * * * *

One more question: Which hedge funds were paying Aschoff’s bills?

There is one particular network of hedge fund managers that is known to pay “independent” financial research shops to publish biased or false negative reports on companies that they are selling short.

Former employees of “independent” financial research firm Gradient Analytics have providedswornaffidavits that hedge fund manager David Rocker–once the largest outside shareholder of TheStreet.com; former employee of Milken-Boesky crony Michael Steinhardt (who is the son of “the biggest Mafia fence in America”) and Steve Cohen (now “the most powerful trader on Wall Street;” reportedly once investigated by the SEC for trading on inside information provided to him by Milken’s shop Drexel Burnham) heavily influenced, edited, dictated, and in some cases actually wrote Gradient’s false, negative research about public companies. That means, of course, that Cohen and Rocker had copies of “Gradient’s” research before it was published, which is also highly improper.

And emails acquired by Deep Capture show that Cohen and hedge fund manager Jim Chanos, among others in their network, received and traded ahead of biased reports published by a research outfit called Morgan Keegan. After Deep Capture reporter Judd Bagley broke this story, the SEC began (but will probably never conclude) an investigation into the matter.

Were hedge funds in this network dictating Aschoff’s research, too? I don’t know the answer to that question, but it is worth noting that after the SEC sanctioned Aschoff for impersonating doctors, he went to work for an outfit called Sturza’s Institutional Research, which was owned by a fellow named Evan Sturza.

The SEC has launched (but of course never completed) multiple investigations of Sturza’s companies, which catered to a particular network of short sellers by publishing negative commentary on biotech companies. For example, in 1996, the SEC began (but has never completed) an investigation into whether Sturza conspired with the above-mentioned Michael Steinhardt and a firm called Gilford Securities to take down the stock of a biotech company called Organogenesis.

In the 1980s, Gilford Securities employed Jim Chanos (the above-mentioned fellow who is now under SEC investigation for trading ahead of biased research reports). Chanos manages a few hedge funds, the most famous of which is called Kynikos Associates. He is also the head of the short seller lobby in Washington, and a much favored source of information for the New York financial press.

In 1985 – back when Chanos was still at Gilford; back when journalists did investigations rather than parrot whatever Jim Chanos whispered in their ears – way back then is when The Wall Street Journal published a front page story about a “network” of short sellers said to include Jim Chanos and Michael Steinhardt. The story suggested that this network destroyed public companies for profit and described some of the more egregious tactics – espionage; impersonating journalists to get inside information; conspiring to cut off companies’ access to credit; spreading dubious information – that were employed by Chanos and others in his network.

At the time, Chanos made some effort to publicly distance himself from Michael Milken. And he recently told one reporter that lawyers threatened him in the 1980s because he was selling short companies that had been financed by Milken’s junk bonds. However, the truth is that Chanos’s short selling in the 1980s tended to support Milken’s machinations, and in later years Chanos remained very much a part of the old Milken network.

Chanos got his big break in the 1980s by short selling and ultimately destroying a company called Baldwin United. As part of this effort, Chanos and his colleagues at Gilford Securities went so far as to meet with Baldwin United’s bankers, and (through all manner of horror stories) convinced the bankers to cut off Baldwin’s access to credit. Soon enough, the company went bankrupt, and Michael Milken quickly got himself hired as advisor to the bankruptcy.

According to a well-known businessman who was involved in the bankruptcy proceedings, Milken abused his advisory position, handing out confidential information to his network, which ended up owning much of Baldwin’s assets.

As the story goes, Chanos’s take down of Baldwin impressed Michael Steinhardt and Steinhardt introduced Chanos to his key limited partners – including Ivan Boesky (later indicted for manipulating stocks with Milken) and Marty Peretz (a Milken and Boesky crony who would later co-found TheStreet.com, along with Boesky crony Jim Cramer and a few hedge funds in this network).

Peretz, an aristocrat who has long been a part-time professor at Harvard, introduced Chanos to one of his former students, Dirk Ziff, who manages a hedge fund called Ziff Brothers Investments. The emails cited above show that Ziff Brothers, like Chanos and Steve Cohen, was receiving advance copies of those Morgan Keegan reports.

Dirk Ziff is part of the network of which I write. Indeed, Chanos launched his first hedge fund out of Dirk Ziff’s offices. This was a few years after Chanos left his position at Gilford Securities, which had a few key clients, one of whom was Michael Steinhardt, son of “the biggest Mafia fence in America.”

In the 1990s, five Gilford Securities traders–Chester Chicosky, Todd M. Nejaime, Lawrence Choiniere, Kevin P. Radigan, and William P. Burke – were arrested as part of Operation Uptick, the biggest Mafia bust in FBI history. Although some of these traders had left Gilford by the time they were indicted, they were charged with crimes allegedly committed while they were still working for Gilford. Specifically, the Gilford traders were charged with accepting bribes from a Mob-run brokerage called DMN Capital, and for helping to manipulate stocks with a cast of characters that included ten Mafia soldiers and a former New York police detective.

I asked H. Robert Holmes, who was Chanos’s boss at Gilford, whether he had any comment on the Mafia’s infiltration of his firm. He said, “I don’t know what you’re talking about? This is bullshit.” He also said he was completely unaware that any Gilford traders had been arrested for accepting bribes and manipulating stocks with a large cast of Mafia goons and Mafia associates. That is, he claimed to be unaware of an event in his company that had been vigorously publicized by the FBI and the SEC.

By the time of Operation Uptick, of course, Chanos was no longer with Gilford. He was then a “prominent investor” – a member of the world’s most powerful network of financial operators, a network whose members are portrayed by the press as geniuses and heroes, never mind that this is the very network that has been destroying companies since 1980s – the very network that is (as should by now be apparent) comprised of the criminal mastermind Michael Milken and his Mafia-connected cronies.

I tell you all this only to show the relationships that bind some particularly destructive short sellers and miscreants. It is this network that attacked the big banks last year, helping trigger the collapse of the financial system. And members of this network are the most “prominent” players in the biotech space.

One of those players is Jonathan Aschoff, the doctor-impersonating fraud who was, in the Spring of 2007, making the long-shot prediction that the FDA would not approve Dendreon’s “dangerous” treatment for prostate cancer. As we know, Aschoff previously worked for Sturza’s Institutional Research, run by a fellow who faced multiple SEC investigations (none of which led to any action) for allegedly publishing false information to help short sellers (such as Michael Steinhardt) manipulate stocks.

Ursus specializes in shorting biotech stocks. There are Wall Street brokers who say that Ursus was short selling Dendreon while Sturza’s disciple, Jonathan Aschoff, was bashing the company and others in this network were looking to cash in.

But it is difficult to know for sure whether Ursus was selling short. It is difficult to know who was responsible for flooding the market with at least 9 million (and maybe tens of millions of) phantom Dendreon shares. It is difficult to know because the SEC does not require hedge funds to disclose their short positions, and does not release information on who is selling stock and failing to deliver it.

As far as the SEC is concerned, it’s all a big secret.

But we do know that Aschoff was predicting that Dendreon’s stock would sink to $1.50 right after Dendreon received an overwhelmingly positive vote from the FDA’s advisory panel, and right before Dendreon was derailed by some singularly strange occurrences. In addition, we know that at this time only ten hedge funds on the planet held large numbers of Dendreon put options (bets against the company), and that at least seven of those hedge funds can be tied to the famous criminal Michael Milken or his close associates.

Michael Milken, of course, is not just a criminal, but also a “prominent philanthropist” whose Prostate Cancer Foundation has received much acclaim from the world at large. But, as we will see, it was not just those seven hedge funds, but Michael Milken himself, who stood to earn a tidy profit from the strange occurrences that were to derail Dendreon, a company with a promising treatment for prostate cancer.

* * * CHAPTER 7 * * *

It is easy for executives of public companies to know that they are “battleground” targets of the Milken network because the members of this network have quite distinctive characteristics. Whether they be journalists tied to Cramer, financial analysts, or hedge fund managers, they are unusual among financial professionals in that they take overt pride in their thuggish manner.

They let it be known that the executives are in their sights, and sometimes issue outright threats. They let on that they have inside information, influence, and power – and that unforeseen calamities can happen. (This may have what economists call a “signaling effect,” dissuading potential investors from purchasing a stock, even if they believe in the fundamentals of the company.)

Often members of this network will join companies’ quarterly conference calls, and take turns firing off insinuating and preposterous questions in staccato fashion, giving the targets of their interrogations no opportunity to formulate reasonable replies.

So it was in March of 2007, when Dendreon held a conference call to discuss the FDA advisory panel’s recent vote in favor of Provenge. Nearly every analyst on the call was cheered by the news that the prostate cancer treatment would reach patients. Most of these analysts were advising clients that Dendreon’s stock would hit at least $20 (compared to the $1.50 target set by the doctor-impersonating financial analyst, Jonathan Aschoff).

Here is a representative sample of analysts who participated in the conference call, along with quotations showing how they greeted Dendreon CEO Mitchell Gold, and how they signed off.

Charles Duncan – JMP Securities

Greeting: “A big congratulations!”

Singing off: “Congrats Again.”

David Miller – Biotech Stock Research

Greeting: “Good evening. Warm congratulations.”

Signing off: “Congratulations to everybody on the team.”

Mark Monane – Needham & Company

Greeting: “Good day and congratulations to all.”

Signing off: “Congratulations once again.”

William Ho – Bank of America

Greeting: “Congratulations”

Signing off: “Okay”

Paul Latta – McAdams, Wright & Regan

Greeting: “Good evening & congratulations, Mitch, a great accomplishment for you and your team.”

Singing off: “Congratulations again.”

But then a financial analyst named Elliot Favus appeared on the conference call. Favus worked for Lazard Capital, and announced that he was sitting in for Joel Sendek, who usually covered Dendreon for Lazard. Favus launched into a series of aggressive questions, suggesting that the FDA advisory panel had been a sham, and that the FDA would not approve Dendreon’s prostate cancer treatment.

Then Joel Sendek, Elliot’s colleague at Lazard, got on the call and initiated a similar interrogation. He kept asking whether the FDA advisory panel had asked the “right question” about the effectiveness of Provenge. When Dendreon’s CEO tried to answer, Sendek interrupted and asked again – Did the panel ask the “right question”? The baffled answer was, “Yes.” But Sendek kept asking. Do you think it was the “right question”? Do you think the FDA will have to “change the question”?

This was very strange. The FDA panel asked two questions. Is Provenge safe? And, is there “substantial evidence” of efficacy? Those are the two questions that advisory panels always ask. Federal regulationsrequire them to ask those questions.

It was hard to tell what Sendek was up to. Change the question? Did Sendek believe that the FDA was somehow going to alter its regulatory standards? Did he have information that the FDA might not approve Provenge – never mind that the agency had followed its advisory panels’ recommendations in 97% of cases, and had never in history rejected a panel-approved drug destined for terminally ill patients?

And who was this Joel Sendek?

* * * * * * * *

Sendek is an analyst for Lazard research. He is famous on Wall Street for spending his evenings calling Wall Street investors and shareholders, and literally singing songs into their voicemail. Usually, these songs celebrate the demise of some biotech company or medicine. For example, when Sendek decided that an anemia drug called Erythropoietin wasn’t going to make it to market (or to patients suffering from anemia), he gleefully called everyone he knew on Wall Street and began singing (to the tune of American Pie):

Bye-bye, Erythropoietin pie.

Drove my growth rate with the pipeline,

But the pipeline went dry.

I don’t know what song Sendek sings about Dendreon’s prostate cancer medicine, but his reports on Dendreon have been marked by a similarly cheerful pessimism. Same goes for the reports on Dendreon published by Elliot Favus, who, until recently, worked with Sendek at Lazard. In the long two years that followed that conference call in March 2007, Lazard’s reports have consistently predicted (in tones that seemed almost hopeful) that Dendreon’s treatment would fail to reach patients who were dying of prostate cancer.

In April 2009, a few days before a Yahoo! message board poster predicted, almost to the minute, the“BEAR RAID” that shattered Dendreon’s stock price by 65% in 75 seconds, Lazard put out a statement that said that an “investigator in the current Provenge study” had concluded that Dendreon’s treatment did not work. This was terrible news – assuming that the “investigator” was somebody actually participating in the “current Provenge study” or any other scientific study of Dendreon’s treatment.

But it turned out that Lazard had made “a mistake.”

When Dendreon supporters started hollering that there was no such “investigator,” Lazard changed the statement to read that an “expert” had concluded that Provenge does not work. When Lazard was challenged to produce such an expert, it changed the message again. Now the expert wasn’t exactly saying that Dendreon’s prostate cancer treatment does not work. Instead, it was that Provenge was “mentioned cautiously” by this particular “expert,” who remained anonymous.

Elliot Favus, the Lazard analyst who teamed up with the singing Sendek to trash Dendreon, later resigned from that job. Then he went to work for Och-Ziff Investment Management, a hedge fund managed by Dirk Ziff.

As you will recall, Ziff was the guy who helped Jim Chanos (host to Ashlee Dupre, hooker of Jim Cramer’s best friend Eliot Spitzer) start his hedge fund empire – an empire that now employs Evan Sturza, the fellow who used to be in the business of publishing research that predicted, with similar glee, the demise of medicines developed by companies that were under attack by Michael Steinhardt (Cramer’s former business partner; mentor to Chanos) and other cronies of Michael Milken and Ivan Boesky.

Ziff’, remember, was also the fellow who improperly received–along with Chanos, Steve Cohen and others in their network, advanced copies of biased financial research published by Morgan Keegan. And, of course, Chanos met Ziff through Michael Steinhardt and Marty Peretz, who was Ziff’s Harvard professor; a close friend of Boesky; an ardent defender of Milken; a key limited partner, along with Boesky, in Michael Steinhardt’s hedge fund; and the co-founder, along with Cramer, of TheStreet.com.

Study the world of abusive short selling for three years, as I have, and you will see that these relationships matter. You will see how these people work together. And you will see that the most egregious cases of market skulduggery – the serious damage to public companies done by journalists and analysts through these repeated and precisely-crafted “mistakes”; the hired thugs; the threats; the over-the-top gloom (sung gleefully); the sudden bankruptcies, the orchestrated calamities, the endless litany of strange occurrences – an alarming amount of it can be traced to the same cast of beady-eyed, Milken-loving mischief-makers.

* * * * * * * *

As you may have gathered by now, Provenge has yet to be approved by the FDA. Despite new evidence that it decreases prostate cancer mortality by 38%, the treatment has yet to be administered to patients, 60,000 of whom have died in the two years since the FDA’s advisory panel voted in Dendreon’s favor.

What strange occurrences have contributed to this outcome? What calamity was awaiting Dendreon as these seven “colorful” hedge fund managers stocked up on put options while naked short sellers flooded the market with at least ten million phantom shares?

Before I answer those questions, we ought to get to know some things about the “philanthropy” of Michael Milken and a firm called ProQuest Investments.

In 1993, Milken founded the Prostate Cancer Foundation, with a stated mission to promote advancements in the treatment of prostate cancer.

In 1998, ProQuest Investments opened for business with the specifically stated mission to invest in companies developing treatments for prostate cancer.

One of those deals was a company called Novacea, now known as Transcept Pharmaceuticals. For a long while, the controlling shareholders in Novacea were ProQuest Investments and a fund called Domain Associates. I believe it is safe to assume that ProQuest and Domain are affiliated, given that the two funds not only invest in the same companies, but actually share the same address.

Industry reports state that Domain was the “mentor” to Proquest, and an investor in the fund. One report states that the two funds “plot strategy” together. Thus, it would be more accurate to say that the controlling shareholders in Novacea were first, ProQuest Investments, and second, ProQuest Investments (acting through Domain Associates).

This alone should have set off alarm bells. But for a long while, the media and others believed that Novacea was a serious – indeed, the most serious – competitor to Dendreon. An achievement for Dendreon was considered to be a set-back for Novacea. By the same token, a calamity for Dendreon had the potential to be a major boon to Novacea’s shareholders.

In fact, Dendreon suffered just such a calamity. And this calamity did indeed reap a large fortune for Michael Milken’s ProQuest Investments and Domain Associates.

But ProQuest and Domain are no longer shareholders in Novacea.

That is on account of some strange occurrences that I must describe in more detail.

As we know, ProQuest Investments was ostensibly founded by two men – Jeremy Goldberg and Jay Moorin.

Prior to becoming the ostensible co-founder of Milken’s ProQuest, Moorin’s most significant achievement had been to serve as CEO of Magainin Pharmaceuticals, a company that later changed its name to Genaera Corporation. In many transactions, the financial advisor to this company was Paramount Capital.

Paramount Capital, as you will recall, is owned by Lindsay Rosenwald, the fellow who used to help his father-in-law (the “king of stock fraud”) run D.H. Blair, which was the dirtiest Mafia-affiliated brokerage on Wall Street – the same brokerage whose president had been Michael Milken’s national sales manager, and whose business model had been to underwrite phony biotech companies, then pump and dump their stocks.

As you will recall, Paramount’s vice president was once a top trader at SAC Capital, the hedge fund run by Milken crony Steve Cohen. You will also recall that Cohen and Paramount employee Joseph Edelman were among those seven “colorful” hedge fund managers who held large numbers of put options in Dendreon as of March 2007.

At the risk of being repetitive, I will also remind you that Lindsay Rosenwald controlled Cougar Biotechnology, a company whose scientific advisory board included four doctors affiliated with Milken’s Prostate Cancer Foundation.

When Dendreon became a “battleground stock,” Dendreon had no more than three “serious” competitors. One was Milken crony Rosenwald’s Cougar Biotechnology. The other was Novacea, controlled by Milken’s ProQuest Investments. The third was a company called Cell Genesys, which I will return to in due course.

Magainin/Genaera, the company that was run by ProQuest’s ostensible founder, Jay Moorin, had lots of big ideas. For example, it claimed to have developed a way to treat foot ulcers with a substance extracted from the African clawed frog. It also claimed to have discovered a treatment for cancer. This treatment was apparently derived from the livers of tropical dogfish sharks.

Indeed, a great many of Magainin/Genaera’s supposed treatments were derived from exotic wildlife. And many of these treatments were heralded in press releases that suggested that regulatory approval was just around the corner.

Sometimes, the company announced that its treatments had already gained approval – albeit in exotic locales. Genaera’s lung cancer vaccine “was approved Jun 12 by the Cuban regulatory authorities…” noted one of Genaera’s optimistic press releases. Presumably, Cubans are now free of lung cancer.

For three decades, these press releases appeared. Many of them sent Magainin/Genaera’s stock into orbit. Then the stock would sink. After that, there would be another press release and the stock would be back in the stratosphere.

But in three decades, Genaera never brought a treatment to market. In fact, it never had a treatment approved by the FDA.

Three full decades. Countless potions and serums derived from all manner of critter and jungle beast. A stupendous salary for the CEO, and fantastic profits for anyone who spent those 30 years riding the volatility of Magainin/Genaera’s stock. But not a single treatment was brought to market.

So Barberich was chair of Sepracor (a company that markets sleeping pills), and founder, along with Goldberg (who later “founded” Milken’s ProQuest Investments) of Versicor (which has yet to produce any drugs fit for human consumption). Curiously, Barberich also bankrolled Atlantic Casino Cruises, a gambling outfit that was being set up by a businessman named Adam Kidan and an alleged mobster named Anthony Moscatiello.

Moscatiello, who travels in an armor-plated Mercedes, has been pegged by the government as being the top bookkeeper to the Gambino Mafia family. As the story goes, Kidan masterminded Atlantic Casino Cruises. Moscatiello set the company up. And Barberich was the principal financier of the project.

Unfortunately, the project never really got off the ground. Soon after Barberich invested his money, Kidan, the businessman, entered into a deal to buy another casino, SunCruz, from a fellow named Konstantinos “Gus” Boulis. In due course, Boulis accused Kidan of financial improprieties in the deal.

Adam Kidan was named as a suspect in the murder of Gus Boulis and was questioned, but never charged. Instead, he went to jail for his dealings with Jack Abramoff, the disgraced Washington lobbyist. Moscatiello, the alleged Mafia bookkeeper, was charged with the murder. When he was released on parole, he disappeared. Lately, he has been featured on the popular television program, “America’s Most Wanted.”

Barberich, chairman of Versicor, said he hardly knew Moscatiello or Kidan, and only got involved as the chief financier of their casino because he’d seen an advertisement in a newspaper. Meanwhile, Jeremy Goldberg left Versicor and “founded” ProQuest Investments, Michael Milken’s vehicle for investing in companies that supposedly have treatments for prostate cancer.

Milken is barred from the securities industry, so even though he seems to have been largely responsible for building ProQuest, it is not surprising that he does not appear on ProQuest’s website. Goldberg’s name isn’t listed either. And there are a few other names that disappeared from the website after people began investigating ProQuest.

Among the missing are the names of the people who sit on ProQuest’s advisory board of directors. Thankfully, we have screenshots of the fund’s website, taken prior to the whitewashing.

The screenshots show that at the time that Dendreon was getting mauled in 2007, ProQuest’s advisory board included the following: Jonathan Simons, president and CEO of Milken’s Prostate Cancer Foundation; Howard Soule, executive vice president of Milken’s Prostate Cancer Foundation; Stuart Holden, medical director of Milken’s Prostate Cancer Foundation; William G. Nelson, a doctor who sits on the “Therapeutic Consortium” of Milken’s Prostate Cancer Foundation; James Blair, manager of ProQuest affiliate Domain Associates and a board member of Milken’s Prostate Cancer Foundation; David B. Agus, a doctor with Milken’s Prostate Cancer Foundation; and, finally, a doctor (I’ll introduce him shortly) who was the chairman of the “Therapeutic Consortium” of Michael Milken’s Prostate Cancer Foundation.

Which raises a question: What does the Prostate Cancer Foundation do with the money that it solicits from generous people — not just wealthy donors but also average folks who want to fight cancer and donate what they can?

I do not mean to be dismissive of a philanthropy. I am sure there are well-meaning people who work at the Prostate Cancer Foundation. It has served as a forum for many of the world’s leading doctors to exchange information, and it has raised awareness of a terrible disease. All philanthropy, one can argue, is good. And since Milken himself is a prostate cancer survivor, one is inclined to believe that his interest in battling the disease is genuine.

But that might be to underestimate Milken’s love of “the game” — his desire to be a player in the world. It might also be to underestimate the particular world that Milken inhabits. It is a world of people who desire money, yes, but who perhaps desire in greater measure both stature and influence. For stature and influence blind the public and soothe the conscience.

If you are a miscreant, to play “the game” is fun. To play the game and cheat is more fun still. But it is perhaps also as simple as this: the miscreant desires to feel no shame. He wants to be able to say to himself, “I am important. I am prominent… .I have the approval of others.”

Certainly, Milken has used his “philanthropy” to ingratiate himself with the establishment and the public at large. He is one of the few convicted criminals who has returned to “prominence.” So, it seems, he has gotten one over on us. He has won. But “the game” is never over. And in the view of Deep Capture, winning matters more to Milken than battling the disease that once afflicted him.

Yes, it’s all about “the game.”

This might explain why Milken’s “philanthropic” outfit snubbed its nose at Dendreon, a company that did not have a cure for prostate cancer, but did boast the most promising new treatment available—a treatment that could have been safely administered to patients right away. This might explain why Milken’s Prostate Cancer Foundation instead supported Novacea, a company whose controlling shareholders were Milken’s ProQuest Investments and its affiliate. As we will see, Novacea’s treatment was more likely to kill patients than save them, but that does not matter when it’s all about winning “the game.”

To win the game, of course, one must have allies — preferably miscreants who know a good scheme when they see it. Perhaps that is why Perceptive Advisors, which is an affiliate of Milken crony Lindsay Rosenwald’s biotech empire, invested a large sum in Milken’s Novacea while serving as one of the seven Milken-network hedge funds that bet big against Dendreon.

As you will recall, Perceptive Advisors didn’t just bet big, it also pounded Dendreon by exercising call options, flooding the market with millions upon millions of Dendreon shares. Simultaneously, Milken crony Steve Cohen, whose former top trader was a vice president of Lindsay Rosenwald’s Paramount Capital, flooded the market with at least 1.6 million Dendreon shares.

But it’s not just about winning the game. It’s about the exhilaration of pushing the limits. It’s about being brazen – brazen to the extreme; brazen to the point of lunacy – and seeing if you can (ha! ha! ha!) get away with it.

Perhaps that is why Milken’s Prostate Cancer Foundation went to extraordinary lengths (delivering money, organizing conferences, dispatching prominent doctors) to promote a mostly untested prostate cancer treatment – a treatment (Abiraterone) that was ostensibly being developed by Cougar Biotechnology, the company that was controlled until recently by the above-mentioned Lindsay Rosenwald, who is not only the son-in-law of the “king of stock fraud,” but also a former vice chairman of D.H. Blair – a firm whose president was Michael Milken’s former national sales manager; a firm that was tied to the Mafia and indicted on 173 counts of securities fraud; a firm that was best known for fraudulently pumping and dumping biotech companies that had no real medicine whatsoever.

Yes, it’s all about “the game.”

Perhaps this also explains the strange occurrences that began in the Spring of 2007.

* * * * * * * *

In the weeks after the FDA’s advisory panel meeting on March 29, 2007, there were only three financial analysts on the planet who were giving a “sell” rating to Dendreon’s stock.

The first two you have already met. One was the song-singing Sendek of Lazard research, the outfit run by the former head of research at a subsidiary of TheStreet.com, which was co-founded by Milken crony Marty Peretz, short selling hedge funds, and Jim Cramer, the former hedge fund manager turned “journalist.”

The second was Jonathan Aschoff, the doctor-impersonating fraud who used to work for Sturza’s Institutional Research, a firm that specialized in publishing biased, negative financial research on biotech companies for a network of short sellers that included the likes of Jim Chanos (Sturza’s current employer) and Michael Steinhardt (mentor to Chanos; son of the “biggest Mafia fence in America”; partner of Milken co-conspirator Ivan Boesky; and incubator of Jim Cramer’s hedge fund).

The third financial analyst who was bashing Dendreon in the spring of 2007 was Maged Shenouda of UBS, the investment bank. Shenouda’s arguments against Dendreon matched almost precisely those of Aschoff and the singing Sendek, both of whom we have shown to be part of the Milken network. So it is probably significant that Shenouda’s boss, the president of UBS investment banking, was (until March 2007) Ken Moelis, who had once been a trader for Michael Milken’s operation at Drexel, Burnham, Lambert. Indeed, Moelis had been one of Milken’s most trusted and favored employees.

While this protégé of Milken was president of UBS, the company had become one of the more crooked banks in the world. According to the Department of Justice, for example, UBS “systematically and deliberately” violated U.S. law by recruiting Americans looking to evade taxes. But, of course, it was not ordinary Americans who hid their money at UBS. It was only the wealthiest of people, including hedge fund managers, who stashed billions upon billions of dollars in secret accounts at UBS, while perhaps taking advantage of the bank’s other “services” as well.

Was one those “services” illegal naked short selling? In 2006, the Louisiana attorney general filed court documents to compel UBS to hand over records that would help answer that question. Specifically, the attorney general suspected that UBS had, along with Refco, processed phantom stock for Rhino Advisors, the hedge fund whose manager became a fugitive from U.S. law, living in Austria, his money undoubtedly stashed in secret bank accounts, after his “unbridled” criminal naked short selling destroyed companies that had been hobbled by fraudulent “death spiral” PIPEs deals, many of which were brokered by Milken crony Carl Icahn’s Ladenburg Thalmann.

In March of 2007, when Dendreon’s prostate cancer treatment appeared to be on the fast track to FDA approval, and a UBS research analyst was trashing Dendreon, another interesting event was unfolding. Specifically, Mitchel Guttenberg, who had sat on an elite 12-member committee that signed off on the contents of UBS’s financial research, had just been arrested by the FBI.

Prior to joining UBS, Guttenberg had not had a distinguished career. He started out in Wisconsin, where regulators determined that he was trading without a proper license. Later, he worked at a second-tier bank called First Albany and put in time at Axiom Capital, a firm that was once censured by the NASD for publishing false financial research on biotech companies. (More recently, one of Axiom’s brokers was charged with systematically defrauding mentally handicapped elderly people).

Moelis, the Milken protégé who was president of UBS, stacked the bank with his cronies, many of them former Milken employees, and had a propensity for hiring and promoting people who were a bit rough around the edges. For example, it would have been Moelis who promoted Guttenberg to the elite committee that signed off of UBS’s financial research.

Soon after joining UBS’s financial research committee, according to the DOJ, Guttenberg began illegally providing inside information about the contents of soon-to-be released UBS research reports to a circle of hedge fund managers and traders. Two of the traders who profited from Guttenberg’s tips worked for a hedge fund called Chelsey Capital. Previously, the SEC had investigated Chelsey Capital and a hedge fund called GLG Partners for allegedly paying investment banks large commissions (bribes) in exchange for privileged access to initial public offerings.

It is clear that GLG Partners (and perhaps, by extension, also Chelsey Capital) is a member of the network of hedge funds that is the subject of this story. Thanks to a lawsuit that Canadian insurer Fairfax Financial filed against SAC Capital (run by Milken crony Steve Cohen); Kynikos Associates (run by the above-mentioned Jim Chanos), and other hedge funds in their network, Deep Capture has acquired copies of emails that Jim Chanos sent to GLG Partners. While it is difficult to tell from these emails whether GLG participated in the network’s attack on Fairfax, Chanos certainly communicated with GLG about the status of that attack.

In March, 2007, when Mitchel Guttenberg, the member of UBS’s elite 12-member financial research committee, was arrested, the SEC stated that Guttenberg was at the center of “one of the most pervasive insider trading rings since the days of [Milken co-conspirator] Ivan Boesky….” A few days later, Moelis, the Milken protege, resigned from UBS to start his own investment bank.

A few months after that, French authorities busted another UBS insider trading ring, this one including UBS subsidiary UBS O’Conner; the above-mentioned GLG Partners; and a hedge fund called Meditor Capital. At the time, one of Meditor’s top traders was Andrew Billet, formerly of SAC Capital, the hedge fund run by Milken crony Steve Cohen, who was one of the seven “colorful” traders who held large numbers of put options in Dendreon.

This connection would not be worth mentioning except for the fact that Steve Cohen is known to include his former employees in his nationwide trading network, and in 2007, Meditor’s trading tended to run parallel to that of Cohen’s hedge funds. Indeed, Meditor’s biggest share purchases were in biotech companies – Onyx Pharmaceuticals, Vion Pharmaceuticals, Atherogenics, and Cypress Bioscience — that were also targeted by Cohen’s SAC Capital.

Moreover, in April, 2007, right before some strange occurrences were to derail Dendreon, Meditor purchased 1.6 million shares in Novacea, the company whose controlling shareholders (Michael Milken’s ProQuest and Domain Associates) must have known, for reasons that I will describe, that they would make money on their investment in Novacea only in the event that Dendreon’s treatment for prostate cancer failed to go to market.

Aside from Meditor Capital, there was, in the spring of 2007, only one other hedge fund that made a major investment in Milken’s Novacea – a company whose prostate cancer treatment, we will see, had no chance of reaching patients anytime soon. The second hedge fund was Perceptive Advisors, managed by an employee of Paramount Capital, whose vice president was formerly one of Steve Cohen’s top traders.

Perceptive Advisors, we know, was one of the seven “colorful” hedge funds that held large numbers of put options in Dendreon. And Paramount Capital was owned by Lindsay Rosenwald, the Milken crony who controlled Cougar Biotechnology, another Dendreon “competitor” that claimed (with help from Milken’s Prostate Cancer Foundation) to have a treatment for prostate cancer, though that treatment had almost no data showing that it could be safely administered to patients.

So we can begin to see a pattern – a pattern that is all the more interesting when you consider the strange occurrences that began in April 2007.

* * * * * * * *

I will get to those strange occurrences in a moment. But first let’s learn a bit more about that first UBS insider trading ring — the one that was busted in March 2007, when a UBS researcher was bashing Dendreon.

In addition to the Chelsey traders, the ring included two other miscreants – David Glass and David Tavdy, both of whom received advance notice of the contents of UBS’s financial research. Tavdy, described as a “scrappy” Russian immigrant, was a close friend and former First Albany co-worker of Mitchel Guttenberg, the fellow who was a member of UBS’s elite financial research committee. Tavdy earned a fortune from his trading, but apparently unsatisfied, he had painted on his expensive, high-speed motor boat the name, “Enough is Never Enough.”

Glass had previously spent most of his career at Sterling Foster, which was one of the first brokerages shut down by the FBI when the bureau began its crackdown on Wall Street outfits believed to be tied to the Mafia. Glass quit his job at Sterling Foster right before the FBI raided the firm, arresting 20 of its brokers. Later, Glass helped a close friend write the script for “Boiler Room,” the successful movie about a brokerage that specialized in ripping off investors.

Glass was the first one busted for his role in the UBS insider trading ring. The FBI promptly strapped him with a wire and dispatched him to record a conversation with a Wall Street greaseball named Larry McKeever, who had said that he was going to expose the UBS insider trading ring to the authorities unless Glass paid him a large sum of money.

In the course of this conversation, Glass mentioned Tavdy and Tavdy’s close friend, Mitchel Guttenberg, whom Milken crony Ken Moelis had promoted to UBS’s financial research committee, putting him in a position to illegally disclose the contents of upcoming UBS research reports.

Specifically, Glass told McKeever that the attempted bribe wasn’t a good idea because Guttenberg and Tavdy might find out about it. Glass was especially careful to warn McKeever about Tavdy. As Glass put it, Tavdy “probably knows the name of Larry McKeever.”

In response, McKeever said of Tavdy: “Listen, Glass, I kid you not—he’s a fucking dead man. I don’t give a fuck if he’s tied into the Russian mob or whatever. I’ll find that cocksucker, mark my words. My lips to your ears. He don’t know my name.”

At this point, McKeever appeared to have had second thoughts about issuing threats to Tavdy, a guy who might be tied to the Russian mob.

McKeever nervously added, “How does he know my name?”

* * * * * * * *

In March 2007, after the FDA advisory panel voted in favor of Provenge, the singing Sendek, the doctor-impersonating Aschoff, and the fellow from UBS’s troubled research shop were the only three financial analysts in the world who were dismissive of Dendreon’s prospects. But it is interesting to see what a determined public relations campaign can accomplish.

Dendreon’s treatment was the first-ever vaccine for cancer. It was the first-ever promising substitute for the ravages of chemo. And it was the first-ever cancer therapy that could target and boost the immune system. Although the data suggested that it did not prevent the inevitable end in some patients, but merely forestalled it, the treatment was truly revolutionary and seemed to have the potential to save a lot of people. So one might have expected some media excitement.

But Dendreon was a small company that did not understand how “the game” worked. The whispering hedge funds, along with their proxies — the song-singing, doctor-impersonating analysts – were more sophisticated. So the press reports on Dendreon were few in number. And most of them featured Sendek, Aschoff, or the UBS fellow voicing their party line that Provenge was “dangerous” – that the data was insufficient, that there were better drugs in the pipeline. And as the days went by we heard more and more about this strange notion that the Provenge advisory panel had asked the “wrong question” – that the FDA might have to “change the question.”

Dendreon’s enemies repeated their “talking points.” They stayed “on message.” They manufactured the news, and the news was that the FDA just might reject Dendreon’s application. Rarely mentioned was the fact the FDA had never in history rejected a drug for dying patients after its expert advisory panel had voted for approval.

But despite the weird news reports, Dendreon’s stock price continued to soar.

And so, the hedge funds continued to pile on. Call options (such as those exercised by the above-mentioned Perceptive Advisors) were exercised in mass. And millions upon millions of phantom shares continued to flood the market. By April 10, Forbes magazine was reporting that Dendreon, a company that then had a market cap of just under $2 billion, had become one of the top three most heavily traded stocks on Wall Street – beating out Microsoft, Cisco, and Seagate Technologies.

On April 12, Jim Cramer tried to explain away the increase in the stock price. He told CNBC’s audience that they were witnessing a short “squeeze,” – the stock price was soaring as short sellers scrambled to buy shares to cover their positions. Cramer added that he was aware of one hedge fund manager who had failed to buy counterbalancing call options at an effective strike price. This was probably a reference to Edelman at Perceptive Advisors. In any case, Cramer seemed to be saying that it was just a matter of time before the stock price would crash again.

Cramer was right about that. But there was no short “squeeze” – the short sellers were not covering their positions. To the contrary, they were growing their positions — exponentially. On April 4, 2007, around 3 million Dendreon shares were sold short. The next day, the number of shares sold short quadrupled – to 13 million. And more than 10 million shares were sold short every day leading up to April 12.

It is a safe bet that these short sellers knew that something was going to crack Dendreon’s stock price.

And sure enough, on April 13, Dendreon witnessed the first of some singularly strange occurrences.

* * * * * * * *

Late that day – April 13 – a newsletter called The Cancer Letter published a presumably confidential letter that Dr. Howard Scher of the Memorial Sloan-Kettering Cancer Center had written to the Food and Drug Administration. Dr. Scher was one of the 17 doctors who had sat on the FDA’s advisory panel, and his letter — which was addressed to an FDA deputy commissioner and cc’d to then FDA Commissioner Andrew von Eschenbach and an FDA official named Richard Pazdur – argued vehemently that Dendreon’s prostate cancer treatment should not be approved.

This was strange for numerous reasons. For one, it was unprecedented for a doctor to lobby the FDA after an advisory panel had already voted on a treatment. Doctors who are contracted by the FDA to judge a treatment for a life threatening disease voice their opinions during the advisory panel meeting. At the end of the meeting, they are invited to vote on two questions: Is the treatment safe? And, is there “substantial evidence” that the treatment might improve the health of patients? The vote is considered final. When it’s done, the doctors are expected (as we will see) to go home and keep their opinions to themselves.

When Dendreon supporters and prostate cancer advocacy groups–including Care-To-Live, a heroic organization that has done much to publicize Dendreon’s travails–saw Dr. Scher’s letter, they asked Francesco Marincola, a doctor who had sat on the Provenge advisory panel, to write his own letter in Dendreon’s defense. Dr. Marincola declined. He said, “As you may well infer…I share many of your opinions. However, I strongly believe that my role as a member of the advisory board is to express my opinion during the meeting [and that] it would be ill advised to influence the FDA decision beyond that point.”

Dr. Marincola added: “If it is true (which I doubt) that some other member of the board contacted the FDA afterwards, it is beyond my control. But my personal opinion is that my credibility as a member of the board will be better preserved if I give my impartial opinion at the time of the meeting and let the FDA do their work afterwards.”

This, said Dr. Marincola, was a matter of preserving the “integrity of the process.”

* * * * * * * *

The second thing strange about Dr. Scher’s missive is that, within days, it ended up in the hands of The Cancer Letter, a publication whose subscribers include a significant number of Wall Street investors. FDA employees are forbidden to discuss the merits of medical products in public, and one big reason is that news of such discussions can profoundly affect stock prices.

The publication of Dr. Scher’s letter was reminiscent of an event that had made The Cancer Letter famous in the world of biotech – an event that had established The Cancer Letter’s reputation as an organ of short selling hedge funds. That event was the FDA’s decision in 2001 to deny approval of a cancer drug that had been developed by a biotech company called ImClone.

News of the ImClone decision was made public not by the FDA. Somebody had inside information that the FDA was going to reject ImClone’s cancer treatment, and that somebody leaked the information to The Cancer Letter, which published it with great fanfare. In the days prior to the publication, short selling in ImClone increased dramatically. Meanwhile, ImClone executives and their friends offloaded their shares.

One of those friends was Martha Stewart, who was then known for her all-American, home lifestyle products. Stewart was accused of trading on her inside information about the FDA’s ImClone decision. Ultimately, she went to jail for obstructing the DOJ’s investigation into her actions.

Others were more fortunate. A Congressional investigation into the ImClone affair produced phone records that showed who had called ImClone in the days before the FDA’s decision was made public by The Cancer Letter. These records show that on December 27, 2001, ImClone received phone calls from three hedge fund managers. Presumably, these three hedge fund managers had gotten wind of the imminent story in The Cancer Letter, and were calling to discuss.

It should surprise nobody that these hedge fund managers were all members of a particularly colorful Wall Street network. One of the three hedge funds that called ImClone that day was Ziff Brothers Investments. That, remember, is the fund that incubated the trading empire of Jim Chanos, who is now under investigation for trading ahead of reports issued by financial research firm Morgan Keegan. Dirk Ziff, as you will recall, was introduced to Chanos by Michael Steinhardt (Milken crony; Boesky partner; son of “the biggest Mafia fence in America”) and by Ziff’s Harvard Professor, Marty Peretz (Steinhardt partner; Boesky crony; Milken pal).

The second hedge fund that called ImClone that day was SAC Capital, run by Steve Cohen, the Milken crony who is “the most powerful trader on the Street.” As you will recall, Cohen is a Chanos collaborator (both received and communicated about advanced copies of the same Morgan Keegan reports, and they have frequently employed the same tactics, and the same thugs, to attack the same companies). As you will also recall, previously Cohen was the top earner at Gruntal & Company, a Mafia-linked brokerage that owed its existence to Milken’s junk bond finance. While there, he was reportedly investigated for trading on inside information provided to him by Milken’s people at Drexel, Burnham, Lambert.

The third fund manager who called ImClone that day was Carl Icahn, the Milken crony who founded the options department at the Mafia-linked Gruntal & Company before becoming a billionaire by brokering “death spiral” PIPEs financing in cahoots with criminal naked short sellers, and by blackmailing companies with finance from Milken and the Mafia-connected Zev Wolfson.

It is difficult to know whether these three fund managers acted on the secret ImClone information that The Cancer Letter made public soon after they called ImClone. We don’t know because the SEC does not require hedge funds to disclose their short positions, as they do their long holdings.

Short positions are, after all, a big secret.

* * * * * * * *

We do know that in the days leading up to The Cancer Letter’s publication of Dr. Scher’s letter, short selling of Dendreon’s stock increased dramatically. Indeed, as mentioned, short selling of Dendreon quadrupled on April 5, the day before Dr. Scher emailed his confidential letter to the FDA.

At the same time, criminal naked short sellers churned out more phantom stock. SEC data shows that at least 9 million shares “failed to deliver” on April 10. Since “failures to deliver” are recorded three days after the phantom stock was sold, this means that massive amounts of naked short selling occurred on April 5. On each day leading up to April 13, the day that Dr. Scher’s missive was published in The Cancer Letter, between 9 million and 12 million phantom shares “failed to deliver”. On April 10, Dendreon’s stock was trading at its high of around $25. By April 12, the day before The Cancer Letter’s “scoop,” the stock had already nosedived to around $18.

This trading was strange. And as mentioned, Dr. Scher’s letter was strange.

It wasn’t just that Dr. Scher’s lobbying of the FDA was unprecedented and an affront to the “integrity” of the drug approval process. And it was not just that his letter to the FDA quickly appeared in The Cancer Letter (just as The Cancer letter had made public the FDA’s decision about ImClone). And it was not just that short selling hedge funds clearly knew that Dr. Scher’s letter was in the works.

It was that Dr. Scher’s letter precisely echoed the party line that had been put out by the whispering hedge funds, the song-singing Sendek, the UBS researcher, and the doctor-impersonating Jonathan Aschoff.

Like the Wall Street analysts, Dr. Scher said that Provenge had failed to meet its “primary end-points in two clinical trials” — that the data was not absolute “proof” that Provenge worked. And just as Aschoff had told journalists that it would be “dangerous” to approve Dendreon, Dr. Scher argued that the FDA would be somehow setting a dangerous precedent by approving a new standard of treatment.

Dr. Scher’s letter was also reminiscent of that Dendreon conference call, when the singing Sendek asked, over and over, whether the advisory panel had asked the “right question” and whether the FDA might have to “change the question.” Now Dr. Scher, too, was suggesting that the advisory panel had somehow been a sham – that it had “changed the question” regarding the efficacy of Provenge. Since the panel had voted on the wrong “question,” Scher argued, the panel’s overwhelming endorsement of Provenge should be disregarded.

It seemed that Dr. Scher, who is one of the most prominent cancer doctors in America, was parroting the medical wisdom of Wall Street goons. Either that, or the goons were parroting Dr. Scher. Whichever the case, and whatever their motivations, Wall Street miscreants and a prominent FDA-contracted doctor were now working in parallel to quash a promising treatment for prostate cancer.

* * * * * * * *

Here’s another factoid about Michael Milken’s ProQuest Investments. As I mentioned, ProQuest whitewashed its website, so that it no longer identifies the directors of its advisory board. Screenshots from the past allowed me, in a previous section of this story, to tell you who most of those directors were as of Spring, 2007. But there is one ProQuest director whom I have not yet identified by name.

That is correct: Dr. Howard Scher, who sat on the advisory panel that voted on the merits of Dendreon’s prostate cancer treatment, and then trashed Dendreon’s treatment in a letter to the FDA (an unprecedented lobbying effort after an advisory panel had voted), was also a director of Michael Milken’s ProQuest Investments. In fact, Dr. Scher was not just a director of ProQuest, he was also an executive of the fund, which likely means he stood to profit from its investments.

Dr. Scher was, moreover, the chairman of the “Therapeutic Consortium” at Michael Milken’s Prostate Cancer Foundation. He also received unknown amounts of money as the lead investigator of Asentar, the prostate cancer treatment that was being developed by Novacea, whose controlling investors were Milken’s ProQuest Investments and its affiliate, Domain Associates. Meanwhile, Dr. Scher was a paid member of the advisory board of Cougar Biotechnology, the Dendreon competitor that was controlled by Milken crony Lindsay Rosenwald, formerly of the Mafia-connected pump-and-dump stock fraud shop D.H. Blair.

It is bad enough that the world’s foremost financial criminal, Michael Milken, stood to profit from the demise of a promising prostate cancer treatment. It is disconcerting to know that Lindsay Rosenwald, a Mafia-connected Milken-crony with a record of destroying real companies and creating fake companies, is among the biggest biotech players in the nation – a player who controls 8% of the world’s pharmaceutical firms. It is unsettling to know that this crony and those seven Milken-network hedge funds with large numbers of put options were no doubt intent on seeing Dendreon fail.

But somehow, the saddest news of all is that Dr. Scher took unprecedented steps to derail a competing treatment that could have extended the lives of a great many men. Dr. Scher is one of the most prominent physicians in America. He is considered one of the world’s foremost experts on prostate cancer. His opinions matter. His advice is heeded. It is likely that at some point Dr. Scher believed that other treatments were superior to Dendreon’s, but somewhere along the line, he seems, at least to some extent, to have let his motives become mixed in with his incentives.

Given his connections to Milken’s ProQuest Investments, to Novacea (the company controlled by ProQuest and an affiliate) and to Dendreon’s other competitors (such as Cougar Biotechnology), Dr. Scher probably should not have sat on the FDA advisory panel that voted on whether Dendreon should be approved. He certainly should not have been lobbying the FDA. He should not have trashed Dendreon’s treatment, for as he must have known, due to these other relationships, he could no longer claim to be an objective observer.

He had what they call…well, in more innocent times, they called it a “conflict of interest”

* * * * * * * *

Maybe we should not be too hard on Dr. Scher. I am reminded of a story that I once reported for Time Magazine in Asia, about a network of Mafia-connected stock brokerages that had set up shop in Bangkok, Thailand in order to avoid the FBI “Mob on Wall Street” crackdown that led to Operation Uptick in 2000. The owners of the brokerages were bad guys (there was a point where they nearly began murdering each other in the streets of Bangkok), but they had become quite prominent in some business circles. They were also fantastically generous “philanthropists.”

The bad guys gave especially large sums of money to a priest who was famous for the wonderful work he had done to help people in Bangkok’s most dire slums. The priest was, of course, grateful for the contributions, and he used every opportunity to speak highly of his benefactors. Even when the bad guys were charged with crimes – even when they became fugitives from the law – the priest spoke quite strongly in their defense. He simply refused to acknowledge that the criminals were anything other than “prominent” businessmen and “prominent” philanthropists.

The priest was not a bad man. He was as good as they come. But he had received so much money – and he had deployed this money to so much good purpose – that he was inclined to continue working with the criminals.

The famous priest should have condemned the miscreants. He was an important voice of moral authority. But by the wonders of human psychology, he possibly believed, quite genuinely, that the criminals had done no wrong. We call this phenomenon “deep capture.” The priest had been “captured” by the criminals. His judgment was clouded.

Perhaps Dr. Scher was a priest of the medical community. Michael Milken’s Prostate Cancer Foundation had donated tens of millions of dollars to Dr. Scher’s hospital, Memorial Sloan-Kettering (a hospital, it should be noted, by way of disclosure, that has also received significant donations from the family of Deep Capture reporter Patrick Byrne, whose cancer was successfully treated there). With support from the Prostate Cancer Foundation, Dr. Scher and Memorial Sloan have been able to continue their research into experimental treatments that perhaps will one day help patients.

No doubt, Dr. Scher was grateful for this generosity. No doubt, he was earnest about his Milken-financed investigations and believed that he was contributing to the advancement of science. Meanwhile, Milken and his foundation had become quite “prominent” players in the fight against prostate cancer. Indeed, it is fair to say that Milken, more than anyone, had come to dominate the prostate cancer establishment. Nobody had more influence. So, in Dr. Scher’s view, it perhaps made perfect sense to collaborate with this criminal. As his collaboration grew, he perhaps became inextricably tied to the work – not just financially, but also emotionally.

The phenomenon of “deep capture” is indeed pervasive. And it is pervasive because it can swallow anyone – even those with the best of intentions.

That said, Dr. Scher’s letter to the FDA was not merely the work of an earnest but “captured” physician. As we will see, it was conniving. It trashed Dendreon in a manner that was patently dishonest, and exaggerated the promise of a treatment (the one under development at Milken’s Novacea) that would soon be shown to be ineffective.

Unwittingly or not, Dr. Scher aided the machinations of the criminal Michael Milken. And as we will see, there are good reasons to suspect that those machinations were not about philanthropy or fighting cancer, or even about investing in companies that had genuine value.

The machinations were about destroying a good company so that Milken and a network of hedge funds could make a big bundle of money.

* * * CHAPTER 9 * * *

As Dr. Scher made clear in his letter, his concern about Dendreon was not, strictly speaking, that it didn’t work, but that it would render irrelevant his work on Novacea’s competing treatment, Asentar. A new phase 3 trial to test the effectiveness of Asentar (referred to in the letter by its medical name, DN-101) had been “designed, initiated and continues to accrue,” Dr. Scher wrote. “I am the International Investigator on this trial.”

Nowhere in his letter (and nowhere in the conflict-of-interest waiver form that he submitted in order to get a seat on the FDA advisory panel that voted on Dendreon’s treatment) did Dr. Scher mention that he was not just the lead investigator in the Asentar trials, but also a board member and executive of Milken’s ProQuest Investments, which was, along with affiliate Domain Associates, the biggest investor in Novacea, the company that was developing Asentar.

Also left unmentioned was the fact that Dr. Scher was the chairman of the “Therapeutic Consortium” of Milken’s Prostate Cancer Foundation. The “Therapeutic Consortium” helps Milken’s “philanthropic” outfit decide which treatments and hospitals deserve its support. It is clear that the Prostate Cancer Foundation’s donations to hospitals such as Dr. Scher’s Memorial Sloan are linked to the hospitals’ support of specific treatments being developed by specific Milken-affiliated companies.

For example, in one typical press release, the Prostate Cancer Foundation stated that the “Therapeutic Clinical Investigation Consortium [the Milken Prostate Cancer Foundation outfit of which Dr. Scher is the chairman] played an important role by accelerating testing of this new agent [Abiraterone, the agent developed by Milken crony Lindsay Rosenwald’s Cougar Biotechnology] in Phase II clinical trials…Right now, at MD Anderson and Memorial Sloan-Kettering, both NCI funded cancer centers, the Phase III trials of Abiraterone [Cougar’s treatment] are going on. PCF contributions to Sloan-Kettering reached $18 million to date, possibly more…”

In other words, Milken raised money from unsuspecting donors, including the ordinary folks who slipped cash into the buckets that the Prostate Cancer Foundation places outside of supermarkets and shopping malls. Then Milken, with the support of Dr. Scher, directed that money to Dr. Scher’s hospital, with the understanding that Scher and his hospital would attach their prominent names to drugs developed by companies in which either Milken or Milken’s friends were investors.

Keep in mind that the prostate cancer drugs developed by Milken-affiliated companies were in the earliest stages of development – there was not yet much evidence that they could help patients. But, as we will see, there was lots of potential for them to make money for Milken and his friends.

Meanwhile, when Dendreon produced “substantial evidence” that its treatment could begin extending lives right away, the Prostate Cancer Foundation and affiliated doctors diverted attention from the treatment, and (in the case of Dr. Scher) worked vigorously to ensure that the treatment would not reach patients.

This is not exactly “philanthropy” in its purest form.

* * * * * * * *

Remember, on March 29, 2007, when Dr. Scher sat on the FDA’s advisory panel, he was one of the 17 doctors who voted unanimously that Dendreon’s treatment was safe. And two weeks later Dr. Scher wrote a letter to the FDA in which he argued that the treatment should not be approved.

As mentioned, this letter was strange in that it was unprecedented for an FDA-contracted doctor to lobby the FDA after an advisory panel had already voted. It was strange in that the presumably confidential letter was quickly published by The Cancer Letter, an outfit with a reputation for being an organ of short selling hedge funds. And the letter was strange in that it was disingenuous, to the say the least.

For one, Dr. Scher seemed to have changed his mind with regards to the safety of Dendreon’s treatment.

In his letter to the FDA, he noted that the advisory panel had discussed the fact that Dendreon’s trials showed that 4.9% of patients treated with Provenge had experienced “cerebrovascular events” compared to 1.7% of patients who were given a placebo.

The panel’s 17 doctors, Scher included, had voted unanimously that this was an acceptable risk for patients with a deadly disease – especially since, in other regards, Provenge appeared to be perfectly safe. But now Scher was insisting in a letter to the FDA that these rare “cerebrovascular events” (few of which were fatal) were worrisome enough to deprive end-stage prostate cancer patients of a treatment that might extend their lives.

But Dr. Scher’s “cerebrovascular events” argument was not new. It was precisely the same canard that had been delivered to the press by those dubious Wall Street players — the singing Sendek, and doctor-impersonating Aschoff, the troubled UBS, and the whispering hedge fund managers.

As to the effectiveness of Provenge, Dr. Scher averred in his letter that Dendreon had not met its “primary end-points” and the data was “not considered definitive.” He insisted that the treatment be delayed until Dendreon could provide “proof” that Provenge extended lives.

This was absurd. As Dr. Scher must have known, rarely in history has data on an experimental treatment shown definitive “proof” that the treatment works in every case. Instead, the legally established criteria for FDA approval (especially of treatments for life-threatening diseases) is that the data show “substantial evidence” that the treatment improves the health of patients. Neither medicine nor science progresses by “definitive proof”.

Even if trials do not meet their “primary end-points,” the FDA usually approves treatments for deadly diseases if the odds are nonetheless good that the treatments increase survival. The odds might not be 100 percent, but if they are 98 percent, or even 51% percent, the treatment should be delivered to patients who will otherwise die. This criteria – “substantial evidence” of increased patient survival – is referred to as “the Gold Standard” by FDA officials and doctors everywhere.

In any case, “it may be time we focus less on statistical significance, and more on patient benefit.” So said Dr. Scher himself, in an interview with a medical journal, just a few weeks before he wrote a letter to the FDA harping on Dendreon’s statistical significance. Most likely, Dr. Scher was thinking about his trials of Asentar (the drug under development by Novacea, which was controlled by Milken’s ProQuest Investments and an affiliate) and Abiraterone (the drug developed by Milken crony Lindsay Rosenwald’s Cougar Biotechnology). These trials had not yielded particularly good results.

In fact, as we will see, Asentar was not just unhelpful to patients. During trials of the treatment, patients dropped dead. They dropped dead earlier than expected. And, as Novacea later acknowledged, the cause was clear: Asentar actually killed a significant number of people who were hoped to benefit from it. Provenge increased “cerebrovascular events” in a small number of patients, but patients on Asentar died in such large numbers that Novacea had to discontinue its trials of the drug.

The question is: Did Milken’s Prostate Cancer Foundation, Dr. Scher, and the Wall Street hedge funds really believe that Asentar and Cougar’s Abiraterone were superior to Provenge when they began their attack on Dendreon? Or were their attacks motivated by their financial interests?

* * * * * * * *

It was not necessary for Asentar to receive FDA approval in order for Milken’s ProQuest to make heaps of money from its investment in Novacea. As we will see, the Milken clan had hatched a plan to cash in on their Novacea stock, regardless of what the FDA had to say about the company’s prostate cancer treatment, and regardless of whether that treatment would eventually be shown to kill an unacceptable number of people.

Same goes for Cougar Biotechnology’s investors, who included not just controlling shareholder Lindsay Rosenwald (who once helped run the Mafia-affiliated D.H. Blair, which was indicted on 173 counts of securities fraud and was famous for pumping phony biotech companies), but also two of the seven Milken network hedge funds that were betting big against Dendreon. Cougar’s treatment, supported by Milken’s philanthropy and by the four Prostate Cancer Foundation doctors who sat on Cougar’s advisory board, was virtually untested, but as we will see, this did not prevent the company’s investors from cashing in.

When Dendreon came under attack, similar plans to cash in had been hatched by investors in a company called Cell Genesys, whose experimental (and, we will see, ineffective) treatment was promoted in a most peculiar fashion (which I will describe in due course) by Milken’s Prostate Cancer Foundation.

Investors in those companies did not need FDA approval to make money, but as we will see, their money-making plans would have been foiled if Dendreon had received approval. In reading the transcript of the FDA advisory panel meeting that voted on Provenge in March 2007, one has to wonder if Dr. Scher—who led trials for not only Novacea and Cougar, but also Cell Genesys–knew of these money-making plans, and if this knowledge informed the lobbying he undertook at the panel meeting, and in the days following it.

Among Dr. Scher’s more revealing statements at the advisory panel meeting was this: “So if I start thinking, am I denying a potentially useful agent [Dendreon’s Provenge] to men who clearly need it, the answer is unfortunately I don’t know. So I say, well, what if we think that this really should be available, start thinking about the number of agents that are currently under development.”

This is the same message that was whispered in the ears of reporters, who eagerly transcribed it into their stories. If the FDA approved Provenge, they said, it would become the standard of care. This would be unfortunate because other treatments “under development” might be better. The problem with this argument is that there were very few other treatments “under development.” And when Dr. Scher referred to treatments “under development,” there was little else he could have been referring to other than the above-mentioned Asentar (Novacea), Abiraterone (Cougar Biotechnology), and GVAX (Cell Genesys).

As mentioned, Dr. Scher was connected to all three of those companies. Novacea’s Asentar, we know, was killing people. At the time of Dr. Scher’s attack on Dendreon, Cougar’s Abiraterone had been tested on a total of 38 patients. The data showed that some of those 38 patients saw their blood tests improve, and Cougar Biotechnology trumpeted this information in multiple press releases, but there was zero evidence that Abiraterone increased patient survival. GVAX had been tested on 80 patients, and some of them lived longer, but the data did not yet show “substantial evidence” that GVAX was the reason.

All of these treatments had undergone only Phase 2 trials, whereas Dendreon had completed Phase 3 trials on 170 patients. The data from the Dendreon trials had reached statistical significance, and showed that Provenge reduced mortality. In other words, none of the competing treatments (all financed by Milken or Milken’s friends and promoted by Milken’s “philanthropic” foundation) had come anywhere close to achieving results like Dendreon’s.

But Dr. Scher was insistent – ”a number of alternatives [those “alternatives” being drugs under development by Milken and his cronies with the assistance of Dr. Scher and Milken’s ‘philanthropy’, drugs that would prove, in time, to be inferior] were “currently under development.” And so patients must not have access to Dendreon’s drug – a drug that was capable of saving lives right away.

* * * * * * * *

To understand the lengths to which some people went to derail Dendreon, it is necessary to recall the Dendreon conference call, when the singing-Sendek kept asking whether the FDA might have to “change the question.” Others on Wall Street were whispering about “the question,” the press transcribed into their stories these same whisperings about “the question,” and Dr. Scher made “the question” a key feature of his letter to the FDA. All of them suggested that the FDA advisory panel vote was invalid because the 13 panelists who had voted that Provenge worked had, in fact, voted on the “wrong question.”

The transcript of the Dendreon advisory panel meeting clarifies what was meant by all of this questioning of the “question”. As noted, advisory panels are always asked to vote on two questions: Is the treatment safe? And, is there “substantial evidence” that the treatment is effective?

This is not just custom. It is the law of the land. The 1962 Kefauver Harris Drug Amendments, ratified by the U.S. Congress, stipulated that manufacturers of drug products must establish a drug’s effectiveness by “substantial evidence.”

On the first question, “Is the treatment safe?” the advisory panel had voted “yes”, 17-0. Those 17 included Dr. Scher (though, as has been explained, within weeks he was lobbying the FDA by raising doubts as to the safety of Provenge).

The second question to be addressed was, therefore, “Is there substantial evidence that the treatment is effective?” Dendreon had clearly met this standard – the “Gold Standard” of providing “substantial evidence” of increased survival.

But remarkably, somebody at the FDA advisory panel meeting rewrote the “question.” The chairman of the panel read the question out loud: “Does the submitted data establish the efficacy of [Provenge] in the intended population?”

Immediately, there was confusion. This was not the usual question. Did “establish the efficacy” mean that the panelists had to vote on whether the data had proved, with 100% conclusiveness, that Provenge extended lives? No experimental drug had ever faced such a standard.

Dr. Scher interjected to say that Dendreon’s trials had failed to meet their “two primary end-points.” To this, the FDA’s representative on the panel, Cecilia Witten, remarked that the FDA was aware that the trials failed to meet its two primary endpoints, but that was not the issue. The issue was whether the evidence suggested that Dendreon’s treatment saved lives.

“You know,” Witten said. “We’re given the application based on survival.”

The chairman of the panel resumed with the same question. “Again I’ll read it,” he said. “Does the submitted data establish the efficacy…?”

Thus began the voting. Dr. Scher quickly voted, “No.” So did another physician, Dr. Maha Hussain, and two other doctors. But confusion reigned.

One panelist, a certain Dr. Alexander, said, “So that’s – so my vote is, I don’t know what you would call that…”

A Dr. Chamberlain said, “Well, so I guess at this point I’m not sure how to answer this question. It’s not a yes or no question in my opinion the way it’s phrased. With the safety data and with what we’ve seen, I see no reason not to make this drug available, but I don’t think it’s 100 percent proven that it’s efficacious.”

A Dr. Chappell said, “There’s a degree of belief, and ‘establish’ implies much more certainty…you need please, to specify, at least to me, what you mean.”

A Dr. Alexander piped in, “Like is it a reasonable doubt, a shadow of a doubt?”

At this, there was a lot of mumbling and some laughter. Finally, the FDA’s representative clarified. “Yes,” she said, “the regulatory definition is ‘provide substantial evidence.’ So that’s our standard. Is there substantial evidence that it works…”

The chairman of the committee responded, “So just to clarify what you’re asking, is there substantial evidence that the product is efficacious?”

“Yes,” said the FDA’s representative.

That resolved any doubts, and 13 of the 17 doctors on the panel confidently voted “Yes.” That is to say, when the doctors voted on the correct question – the question that was stipulated by law, as opposed to the question that had been tampered with — the overwhelming consensus was that Dendreon’s treatment should be approved.

* * * CHAPTER 10 * * *

On April 20, three weeks after the advisory panel vote, and one week after Dr. Scher’s missive appeared in The Cancer Letter, Forbes journalist Matthew Herper published a story arguing that there was a good chance the FDA would not approve Dendreon’s cancer treatment outright. “If the agency wants to ask Dendreon for more data, it certainly has some outs,” Herper wrote. “The FDA changed the wording of the question…”

Three days later, Dr. Maha Hussain, one of the panel doctors who, along with Dr. Scher, had quickly voted “No” on the bogus question, wrote a letter to the FDA arguing that Dendreon’s treatment should not be approved. This letter, like Dr. Scher’s, was addressed to FDA commissioners and was presumably confidential. And this letter, like Dr. Sher’s, found its way to The Cancer Letter, which posted it for all to see just three days after it was written.

Dr. Hussain’s arguments were precisely the same as those employed by Dr. Scher and the whispering folks on Wall Street. “The recommendations for approval…are based on data that can only be characterized as best as ‘suggestive’ of possible benefit,” she wrote. “From the scientific and procedural aspects, in general, it would seem that at the end of the day what should determine a positive verdict in any therapeutic trial is the strength of the evidence as critically reviewed by an Advisory Committee…with clear guidance on the question posed to the committee within the framework of the regulatory guidelines and requirements of the FDA for approval.” [Italics mine]

That is, Dr. Hussain—like Dr. Scher, the singing Sendek, and whoever was feeding the journalist Matthew Herper–was suggesting that the FDA panel had voted on the “wrong question.”

Meanwhile, Jonathan Aschoff, the physician-impersonating financial analyst who’d set a target for Dendreon’s stock price to reach a mere $1.50, was telling journalists that the FDA panel would not have voted to approve Dendreon’s treatment if it weren’t for the “substantial” rewording of “the question.” On April 25, Aschoff issued another damaging report, this one asserting, once again, that the FDA would ignore its panel because the panel had voted on the “wrong question.”

By this time Dendreon supporters were busily circulating transcripts showing that the FDA panelists had, in fact, voted on the legal question. The supporters had also discovered Dr. Scher’s ties to Novacea, Cougar Biotechnology, Proquest, and Michael Milken, and began explaining to all and sundry that ProQuest and Novacea would cash in if Dendreon were not approved. Moreover, the supporters had revealed that Dr. Hussain, the second letter writer, had also done work for the Milken-invested Novacea, and was a member of the “Therapeutic Consortium” of Milken’s Prostate Cancer Foundation.

On April 26, Matthew Herper of Forbes published another article – this one repeating the arguments in Dr. Hussain’s letter. Herper, who had been told about Scher’s conflicts of interest, had apparently decided to investigate. This investigation seemed to have involved nothing more than asking Dr. Scher if he had any conflicts of interest. In his April 26 article, Herper reported that Scher’s spokesman said “that Scher had nothing to do with his letter leaking [and appearing in The Cancer Letter], and that he knew of no family members who would benefit financially either way if Provenge were approved.”

To reinforce Dr. Scher’s credibility, and to make Dendreon’s supporters look silly, Herper added that the supporters had alleged that “Scher’s wife works for a hedge fund that might be short Dendreon…This is not true. She works in human resources for a nursing home company that could not conceivably benefit materially from any news about Dendreon.”

Aside from ignoring Scher’s ties to Milken’s ProQuest Investments, which would profit handsomely if Dendreon were not approved, Herper misconstrued the information about Scher’s wife. The truth was, Dendreon’s supporters had revealed that Scher’s wife had a cousin, Barry Lafer, who was a hedge fund manager. Phone records legally obtained by Deep Capture show that Scher called Lafer, at his office, on April 23, while Herper’s article was in the works.

But the main point of Herper’s article was that “all this debate” (i.e. the Wall Street whispering and the conjectures of two conflicted doctors) made “Dendreon an even riskier stock than other biotechs.” Herper added that according to unnamed “others,” Dendreon’s “studies do not rise to the level usually required for approval.”

Besides being false, this was another way of suggesting that the FDA panelists, all experts in their field, voted in favor of Dendreon because they had misunderstood the standards for approval.

They had been asked the “wrong question.”

* * * * * * * *

On April 29, Bloomberg News reported that Dendreon’s shares were being sold at “a record pace” as investors “bet the company’s experimental prostate-cancer drug will fail to win approval from U.S. regulators.”

Then, on May 4, there was yet another letter. This one was from a University of Washington biostatistician named Dr. Thomas Fleming. It is perhaps noteworthy that Fleming had done work for Gerson Lehrman, an outfit that is owned by former hedge fund managers.

Gerson Lehrman has a remarkable business model which can best be described as “institutionalized bribery.” Clients, mostly hedge funds, hire Gerson to put doctors and other experts on the payroll. In exchange for the payments, the doctors agree to provide hedge funds with “insight” (some say they provide inside information) about clinical trials of drugs that are marketed by public companies. The doctors also agree to talk to reporters (and perhaps also to the FDA) about these drugs.

In one famous case that pit generic drug manfuacturer Biovail against Steve Cohen’s SAC Capital and other hedge funds in his network, it was clearly established that doctors hired by Gerson Lehrman on behalf of the hedge funds actually lied to reporters (which could well explain, of course, why they were hired).

Like the letters from Dr. Scher and Dr. Hussain, within days of its creation Dr. Fleming’s missive miraculously ended up in the hands of The Cancer Letter, which eagerly published it.

“Reportedly Scher felt motivated to write the letter after being kept awake the night following the [advisory panel],” wrote Dr. Fleming. “I also was kept awake the night following the panel.”

In addition to knowing about Dr. Scher’s sleeping habits, Dr. Fleming shared Dr. Scher’s concern that approving Dendron’s treatment might derail Asentar, the drug that was being developed by Milken’s Novacea. How “could one defend internal consistency at FDA if [Provenge] were to be approved before the [Asentar] trial?” Fleming asked.

By this time, Dendreon’s supporters (a rambunctious bunch) were screaming and howling about the dishonesty of those who had suggested that the advisory panel had been asked the “wrong question.” So the party line changed a bit. Now it was that the panelists who had voted in Dendreon’s favor must have been somehow confused. Dendreon trials did not “provide ‘substantial evidence of efficacy’, Dr. Fleming wrote. “Rather at best, these trials provide plausibility of efficacy…”

I’ll leave it to the reader to parse the difference between “plausibility” and “substantial evidence.” But clearly, this letter was yet another strange occurrence.

Four days later – May 8, 2007 — the FDA told Dendreon that it was, for now, rejecting the company’s application for Provenge, a paradigm-shattering vaccine for those terminally ill with prostate cancer.

* * * * * * * *

The SEC’s partial data shows that more than 12 million Dendreon shares “failed to deliver” on May 10, 2007. Given that traders are permitted three days to produce stock before their trades are registered as “failures to deliver,” it is clear that hedge funds had sold the 12 million shares of phantom stock on May 7 — the day before the FDA made its decision. This suggests that criminals were aware of this imminent decision. Of course, we do not know who the criminals were because, as far as the SEC is concerned, naked short selling is a big secret.

But we do know that a mere 10 hedge funds held large numbers of put options (a bet that the stock price would fall) as of March 31, a few days after the advisory panel’s nearly unanimous vote in Dendreon’s favor. Obviously, these were hedge funds with remarkable foresight concerning a long-shot event (the FDA’s decision to go against the overwhelming recommendation of its advisory panel to approve a drug for terminally ill cancer patients).

Seven of those hedge funds belong to a mischievous Wall Street network that is known for its foresight. Several of those seven hedge funds have been implicated in naked short selling infractions. And whenever any of these hedge funds have targeted a company, the company has inevitably been victimized by somebody producing a great deal of phantom stock.

Five of these hedge funds I have already named. All have ties to Michael Milken or his close associates. Some have ties to the Mafia. They are: Bernard L. Madoff Investment Securities, Perceptive Advisors, Millennium Capital, Steve Cohen’s Sigma Capital, and Pequot Capital.

In preparation for naming the sixth, we need to hearken back to September 2001, when two airplanes crashed into the twin towers of the World Trade Center, one airplane crashed into the Pentagon, and a fourth dove into a field in Pennsylvania. On the day before that attack, a short seller named Anthony Elgindy called his broker and ordered him to liquidate one of his accounts, giving the explanation that a big event was about to occur. Mr. Elgindy said that on the following day (that is, on September 11, 2001) the market was going to lose two-thirds of its value.

After the 9-11 attacks, that broker notified the FBI of Elgindy’s eerie prediction, and the FBI launched an investigation. In the course of this investigation, the government learned that Elgindy had sold massive amounts of phantom stock, and that he routinely blackmailed and threatened companies that he was selling short. The government also learned that Elgindy had ties to terrorist outfits in the Middle East, and for a time prosecutors argued in court that Elgindy had advance knowledge of the 9-11 disaster.

Ultimately, though, Elgindy was convicted and sentenced to 11 years in prison for the more demonstrable crimes of stock manipulation and paying bribes to two FBI officials who fed him information from the FBI’s National Crime Information System (one of those FBI agents actually kept Elgindy informed of the progress of the investigation into Elgindy’s connection to the 9-11 attacks). In June, 2009, it was learned that the SEC’s inspector general had begun investigating SEC officials who are also alleged to have collaborated with Elgindy, either by providing inside information on commission investigations, or launching destructive, dead-end investigations of companies that Elgindy was selling short.

Elgindy, like Bernard Madoff (the Dendreon short and Ponzi schemer who helped write the SEC’s rules on naked short selling), is believed to have ties to organized crime. He once worked for a now-defunct Mafia-connected brokerage called Blinder Robinson (known on the Street as Blind’em, Rob-em), and a source close to the Elgindy investigation has told Deep Capture that, shortly before Elgindy appeared for sentencing, Russian mobsters forced Elgindy to saw off the tip of one of his own fingers as a reminder not to squeal on other members of his network.

There is evidence – including transcripts of Elgindy’s private Internet message board – that shows that Elgindy routinely attacked public companies in collaboration with certain hedge fund managers. A significant number of these hedge fund managers were part of the Milken network.

One of them was Jeffery Thorp, whose father once worked with the Genovese organized crime family to develop a method for cheating Las Vegas casinos. The government’s investigation of Elgindy eventually led to Thorp, who was charged in 2006 with providing fraudulent “death spiral” PIPEs financing to 22 companies. The SEC’s case, one of the rare instances in which the commission has identified a naked short seller by name, makes it clear that Thorp sold massive amounts of phantom stock, ultimately destroying the 22 companies that had received his fraudulent PIPEs.

Recall that similar “death spiral” PIPEs were arranged by Carl Icahn’s Ladenburg Thalmann, ending in the phantom stock ruination of more than 20 companies. Icahn is the “prominent” investor who owes his status as a billionaire to Michael Milken and the Mafia-connected Zev Wolfson. Icahn is also the “prominent” investor who, along with Ziff Brothers and Steve Cohen, called ImClone immediately before The Cancer Letter published the “leaked” news of an FDA decision. And Icahn is the “prominent” investor whose Mafia-connected former employee was the last man to see Alain Chalem (a Mafia-connected naked short seller) before Chalem’s head was riddled with bullets by Russian mobsters.

Do you still not believe that this network has ties to the Mob? Consider that Thorp’s father, in addition to working for the Genovese organized crime family, was the single most important player in the stock manipulation network that Milken operated in the 1980s.

The father, Edward Thorp, ran a hedge fund called Princeton-Newport. The FBI eventually raided that operation, hauling away phone recordings and documents. Thorp was not ultimately charged, but the evidence that the FBI retrieved that day featured prominently in the prosecution’s 98-count indictment of Milken. Indeed, people who worked on the case say that the Princeton Newport evidence was far more important to the prosecution than the testimony of Milken’s more famous co-conspirator, Ivan Boesky.

Boesky is widely credited with putting Milken away, but actually he provided the authorities with very little information. When asked to provide more, Boesky told the authorities that he feared that he would be killed because Milken had “friends in Las Vegas.”

Do you still not believe that people in this network employ precisely the same ruthless tactics? Consider that when the FBI investigated Elgindy, it also stumbled upon a hedge fund called Gryphon Partners. One of Gryphon’s portfolio managers, Jonathan Daws, was eventually charged with participating in various short selling schemes hatched by Elgindy and his bribed FBI agent. In pleading guilty, Daws said, “others at Gryphon made trades in some of the relevant stocks, independent of me, and not at my direction.” Daws was convicted. No charges were immediately filed against Gryphon.

However, in 2006, the SEC sued Gryphon for providing fraudulent “death spiral” PIPEs financing to 35 companies. Like Thorp and the hedge funds introduced by Carl Icahn’s Ladenburg Thalmann, Gryphon provided its PIPEs financing knowing that it would cause stock prices to fall. The hedge fund then hammered the companies with naked short selling, sending their stocks into “death spirals.” Most of the 35 companies were destroyed.

So, at this point in the story, we have identified more than 70 companies that have been vaporized by “prominent” investors, all part of the same network.

At any rate, Gryphon Partners, the Elgindy-connected, PIPEs-financing, 35 company-destroying, SEC-sued, naked short selling “death spiral” finance house, was founded by G. Stacy Smith and Reid S. Walker, two “prominent” investors who have since gone on to greater things. They now run a hedge fund called WS Ventures.

And WS Ventures is the sixth of our seven “colorful” hedge funds that had the foresight to own large numbers of put options in Dendreon at the end of March 2007, just after the seemingly fantastic news that the advisory panel had voted overwhelmingly in Dendreon’s favor; and during the period when criminal naked short sellers (don’t know who they were; the SEC keeps that a big secret) were pounding Dendreon with phantom stock; and just before the disastrous news that the FDA had, for the first time in history, rejected the advice of its own advisory panel to approve a treatment for terminally ill patients.

A few months after that remarkable attack, Dendreon, on the verge of collapse and desperate for money to support its sabotaged prostate cancer treatment, went ahead and signed a deal to receive its first “death spiral” PIPEs finance.

* * * CHAPTER 11 * * *

Who in the government helped sabotage Dendreon? Despite the lobbying by the captured doctors, despite the Wall Street whispering, despite the singing Sendek and the media mimics — despite all of this, it still seemed likely that the FDA would heed the advice of its advisory panel.

Instead, the FDA told Dendreon that it would not yet approve its treatment — that the company had to get more data, which would take years, by which time the company could easily run out of money. The FDA handed Dendreon (and prostate cancer patients) what seemed like a death sentence. This was a strange occurrence. It must have followed some serious work by government officials in high places.

One official who might have advocated against Dendreon was then FDA Commissioner Andrew von Eschenbach, who was a close ally of Michael Milken. Dr. von Eschenbach was a founding director of Milken’s Prostate Cancer Foundation, and later he was at the forefront of an ultimately unsuccessful effort to convince George Bush to grant a presidential pardon forgiving Milken for his crimes. But it is clear that von Eschenbach was not the only official courted by Milken and his associates.

Long before I came along, an assortment of Dendreon shareholders, prostate cancer patients, honest folks on Wall Street (there are some), and concerned citizens spotted the connections among Milken, ProQuest and the captured doctors who led the lobbying effort against Dendreon. When the FDA failed to approve Provenge, these folks saw that an injustice had been done, and they hollered loudly. Soon after, a grass roots organization called Care-to-Live was founded to advocate on Dendreon’s behalf.

Care-to-Live (to whom I owe a debt of gratitude for uncovering some of the information that appears in this story) has not only chronicled Dendreon’s travails, but has also labored tirelessly to right the wrongs. It has organized street protests and letter-writing campaigns. It has lodged Freedom of Information Act requests and it has filed a lawsuit against the FDA. In the course of these efforts, it managed to get a hold of various documents and email communications between Dr. Scher (the physician with financial ties to Milken’s companies and “philanthropy”) and officials in the government bureaucracy.

What these documents and emails show is that Dr. Scher and his allies depended largely on support from a mid-level FDA employee and a key employee at the National Cancer Institute, which oversees government funding of cancer initiatives, and has considerable, though unofficial, influence over FDA decisions. Over the years, Milken and his Prostate Cancer Foundation have made great efforts to ingratiate themselves with the NCI, which may be one reason why Dendreon was never able to receive government funding, despite the revolutionary potential of its treatment.

On March 31, 2007, Alison Martin, who was in charge of the prostate cancer division of the National Cancer Institute, emailed Dr. Scher, who was busy crafting the missive that would be published with mysterious immediacy by The Cancer Letter. “Glad to hear letter is being drafted,” Martin wrote. “If that [FDA] division’s vote suggests [that Dendreon’s treatment] be considered for approval, I was wondering if it then could go to ODAC, which is more clinically savvy, i.e. this is just a step in a process.”

The “division” whose possible approval of Dendreon’s treatment so discomfited Dr. Martin was the FDA’s Center for Biologic Evaluation & Research (CBER), which was assigned the task of evaluating Dendreon’s application. Martin was suggesting that if CBER was going to approve Provenge, perhaps the matter could be taken to ODAC – the FDA’s Oncologic Drugs Advisory Committee, which was led by an FDA official named Dr. Richard Pazdur.

Pazdur has a close relationship with a Washington lobbyist named Samuel D. Turner. Some years ago, Turner, who helps run an organization called the Cancer Leadership Council, led a campaign to have Pazdur appointed as the commissioner of the FDA. Michael Milken supported that campaign. And Milken’s advisors, such as Dr. Donald Coffey of the Prostate Cancer Foundation, have collaborated closely with Turner in another cancer lobbying group called C-Change, of which the Cancer Leadership Council is an affiliate.

As a result of this support, Milken and Pazdur have become very close friends.

Some years ago, a U.S. Congressional investigation determined that Pazdur, through his lobbyist friend Turner, had leaked inside information that the FDA was going to reject Erbitux, a cancer drug that was developed by ImClone. As you will recall, that inside information made its way to Martha Stewart, setting in motion the chain of events that landed her in jail. The ImClone inside information also was first published in The Cancer Letter, the same rag that published Dr. Scher’s “confidential” letter to the FDA. And, remember, the records of phone calls made to ImClone at that time raise the distinct possibility that funds managed by Milken cronies Carl Icahn, Steve Cohen, and Dirk Ziff also were privy to that information before it was made public.

As an aside, after ImClone’s stock crashed on the news, the company was seized by Milken crony Carl Icahn. And soon after Martha Stewart received the inside information, but before she was caught, hedge funds in the Milken network began short selling Martha Stewart’s company, Martha Stewart Living Omnivision. One hypothesis that explains the exquisite timing of those hedge funds is that the funds knew Martha was going to be arrested and therefore shorted her company on the assumption that news of her arrest would crash the stock. They may even have been the ones who turned her in. But that is a story for another time.

For now, it merely needs to be emphasized that Pazdur, the FDA official, has unusually close relationships with Milken and some of his cronies. He was a key player in the ImClone scandal, which displays remarkable similarities (such as insider information mysteriously appearing in The Cancer Letter and the involvement of hedge funds in the Milken network) to the Dendreon scandal. And with the apparent encouragement of Dr. Scher and Alison Martin at the National Cancer Institute, Pazdur appears to have played a key role in derailing Dendreon’s prostate cancer treatment.

Pazdur was not supposed to be the one who decided whether Dendreon’s drug was approved. Instead, because the drug is a biologic, the decision rested with the FDA’s Center for Biologics Evaluation and Research (CBER). Nonetheless, Pazdur inserted himself into the decision process. It was at Pazdur’s behest that Dr. Scher and Dr. Hussain were, despite their ties to competing companies controlled by Milken’s funds and friends, appointed to the advisory panel that voted on Dendreon’s application.

As you will recall, Dr. Scher and Dr. Hussain were among the four panelists who quickly voted “No” to the incorrectly phrased question about Dendreon’s effectiveness. When the phrasing was changed to the correct, legally mandated question ( Is there “substantial evidence” that the drug reduces mortality?) the remaining 13 experts on the panel voted “Yes.”

According to eyewitnesses, just as panelists began noticing that there was something strange about the question they were being asked, Pazdur began passing notes to Dr. Maha Hussain, who then attempted to instill further confusion, apparently hoping that the panelists would continue voting on the incorrectly phrased question. Pazdur, who had come to the meeting uninvited and unannounced, also spent a good deal of time conversing with Dr. Hussain, giving the impression that they were working together to devise arguments that might turn the panel against Dendreon.

Curious to know whether it was Pazdur who ultimately derailed Dendreon’s application, perhaps even delivering the captured doctors’ “confidential” letters to The Cancer Letter – and wondering whether this had anything to do with Pazdur’s relationship with Michael Milken — Care-to-Live, as part of its lawsuit against the FDA, subpoenaed Pazdur’s relevant emails and documents.

Pazdur responded under oath as follows: “I searched both my paper and computer files and was unable to locate any documents that were responsive to Plaintiff’s requests. I recall receiving…these letters…However, as these letters related to a specific regulatory application conducted by a different FDA Center (CBER), did not fall under my direct regulatory supervision…I shredded my hard copies of these letters and deleted any electronic copies. The documents were shredded and deleted within a month of receipt.”

This response was strange. For one, Pazdur seemed to be stating that he had no involvement in the Dendreon decision. If that were the case, what was he doing at the advisory panel meeting? Pazdur’s statement also contradicted an earlier statement from the FDA. In response to complaints that Pazdur had participated in a decision that was supposed to be left to the CBER division, the FDA said that he had done so “at CBER’s request.” Clearly, Pazdur had been involved in the decision, so it was disingenuous for him to state otherwise in his efforts to explain why he had (frantically?) shredded and deleted all the relevant documents.

Moreover, if Pazdur is telling the truth (and not, that is, simply obstructing justice), then Pazdur violated the spirit of various initiatives, including a bill passed in the U.S. House of Representatives and directives from the Archivist of the United States, aimed at ensuring that government employees maintain records of their official business. The reason that government officials are asked to keep good records is that they are sometimes involved in controversies – controversies such as the one that was swirling around Dendreon’s FDA application when Pazdur began shredding and deleting documents so promptly and thoroughly.

In any case, most of the documents that Care-to-Live requested had been transmitted electronically, meaning that a simple computer excavation could have retrieved them, even if they were deleted. Clearly, Dr. Pazdur had reason not to hand over those documents. Perhaps he was advised not to by his lawyer, who happens also to be the same lawyer who represents The Cancer Letter, the rag that published the “confidential” letters that Dr. Scher and Dr. Hussain wrote to Dr. Pazdur and FDA commissioners.

Fortunately, Alison Martin of the National Cancer Institute did not shred everything – she handed over at least some of her documents. And the email quoted above strongly suggests that her plan was to get Dendreon’s application out of the hands of the designated authority, CBER, and into the hands of Richard Pazdur. In response to that email, Dr. Scher wrote to Martin that he, too, would try to have Dendreon’s application “reviewed by ODAC” (which was controlled by Pazdur). In a follow-up email, Dr. Scher wrote: “Got a minute for quick question related to FDA processes?”

A minute later, Martin responded: “Consider this confidential, please…but I wanted you to know.” As to what confidential information she delivered to Scher, that is unclear from the documents received by Care-to-Live. Perhaps the telling documents were also promptly shredded.

But other documents and emails show that by early April, 2007, as the hedge funds were building up their short positions, Martin was fully engaged in helping Dr. Scher draft his letter trashing Dendreon — the “confidential” letter to the FDA that would be quickly published by The Cancer Letter. Indeed, a copy of a half-edited draft of Dr. Scher’s letter was found on Martin’s computer. And in one email, Martin appears to complain about all the work she has done on this letter. “Maybe you should write a letter, too,” she jokes.

So an employee of the federal government was helping a conflicted doctor lobby the federal government. That is, Martin, the head of the prostate cancer unit at the National Cancer Institute, was helping a doctor – a doctor with financial ties to Michael Milken and to a competing, Milken-invested company — sabotage Dendreon’s treatment for prostate cancer.

As news of this started to reach Dendreon’s supporters, Martin left her job at the National Cancer Institute. Soon after, she was appointed president and chief executive officer of the Melanoma Research Alliance (where one can safely suppose her compensation exceeds her previous government salary).

The Melanoma Research Alliance was a brand new “philanthropic” outfit. It had just been set up by a “prominent philanthropist.”

The name of the “prominent philanthropist” is, of course, Michael Milken.

Milken founded the Melanoma Research Alliance and hired Alison Martin with an initial grant from Leon Black, the “prominent” billionaire and Milken crony who does business with an alleged Russian mobster named Felix Sater.

Sater, remember, is the fellow who allegedly was behind the threat to have Deep Capture reporter Patrick Byrne murdered if Patrick did not end his crusade against abusive short selling and the “deep capture” of the nation’s regulatory bodies.

* * * * * * * *

On May 11, three days after the FDA failed to approve Dendreon’s treatment, The Wall Street Journal published a report that purported to investigate the allegations that the government approval process had been compromised. This “investigation” entailed asking Dr. Scher whether he had any conflicts of interest.

“’I try to keep to the high ground,’” Dr. Scher told The Journal. Apparently content with his reply, and eager to assuage any suspicions that something nefarious had gone down, The Journal added that Dr. Scher “serves as an advisor to Innovive, a small biotech not involved in prostate cancer, and works with Bristol-Myers Squibb in an unpaid capacity on early stage drugs that may hold promise in prostate cancer. He and his wife hold small amounts of stock in Biogen, Idec and Pfizer.”

That was it. According to the Journal, Scher had no conflicts of interest.

The Journal did not mention that Dr. Scher was a board member and executive of Milken’s ProQuest Investments. It did not mention the fact that ProQuest was heavily invested in Novacea, a Dendreon competitor. It did not mention that Dr. Scher was leading the trials of Novacea’s prostate cancer drug, or that he was a paid director on the advisory board of another Dendreon competitor – Milken crony Lindsay Rosenwald’s Cougar Biotechnology. And it did not mention that Dr. Scher was leading clinical trials for yet another Dendreon competitor, Cell Genesys, which, like Cougar and Novacea, was supported by Milken’s Prostate Cancer Foundation, whose “Therapeutic Consortium” was chaired by none other than Dr. Scher.

The Wall Street Journal did not mention any of this, despite the fact that concerned citizens had plastered the information all over the Internet.

Four days after the Journal article appeared– May 15, 2007 – the FDA issued new guidelines for evaluating immunotherapy agents, such as Dendreon’s treatment. Now it was official – Pazdur’s division would have some influence.

This seemed like the FDA was papering over a scandal. If Pazdur had violated the guidelines by influencing the Dendreon decision, now the FDA could say that, in fact, there were new guidelines, and Pazdur had followed them (never mind that the new guidelines were written one week after the FDA failed to approve Dendreon’s treatment, possibly because Pazdur had violated the old guidelines).

* * * * * * * *

Just a few weeks after the FDA said it would not yet approve Dendreon’s treatment, it was easier to understand why Dr. Scher, Milken and their allies were so eager to see Dendreon fail. On May 30, 2007, Novacea, the company whose largest investors were Milken’s ProQuest Investments and the affiliated Domain Associates, announced that it had signed a $500 million deal to jointly develop its prostate cancer treatment with pharmaceutical giant Schering Plough. Within 24 hours, Novacea’s stock price jumped 86 percent.

In subsequent days, the business media reported this “news” as if it were not just a business triumph, but also a major breakthrough in the world of medicine. “On Tuesday, Novacea was just another young biotech, with a modest market capitalization of $187 million,” enthused Forbes magazine. “That all changed on Wednesday when the drug maker announced it had signed a deal worth over $500 million with pharma juggernaut Schering-Plough.”

As this $500 million figure and news of Novacea’s medical miracle made its way around the other news organizations, and appeared everywhere on the Internet, Novacea’s stock continued to soar.

Nobody in the media paused to consider whether a “$500 million deal” constitutes a medical breakthrough (like, for example, reducing mortality by 20% in late-stage prostate cancer patients, as Dendreon had done). The assumption was, if there is big money and the stock is soaring, the company’s prostate cancer treatment must be good.

Furthermore, nobody in the media paused to consider that had Dendreon received approval for its competing treatment, this “$500 million deal” would almost certainly not have happened. Nor did anybody in the media report that the people (Milken and friends) who stymied Dendreon were the same people who stood to profit from this purported “$500 million” deal.

At any rate, the deal was not quite what it was made out to be. Novacea did not receive $500 million. It received $60 million up front. Meanwhile, Schering-Plough was given $12 million worth of Novacea stock at a bargain price. By cashing out of the stock after it soared in value, Schering-Plough could significantly reduce that upfront investment. The rest of the much-trumpeted $500 million was dependent on Novacea’s clinical trials showing that its cancer treatment actually improved the health of patients.

Sure enough, just a few months later, in November 2007, Novacea announced that the clinical trial of its treatment had been terminated “due to an unexplained imbalance of deaths…” In other words, Novacea’s drug was not improving the health of patients. It was killing patients. And as soon as this news was released, the much-heralded $500 million Schering-Plough deal was cancelled.

Either shortly before or soon after the trials were terminated due to an “imbalance of deaths,” Milken’s ProQuest Investments and Domain Associates sold their stock in Novacea. Given the enormous boost the stock price had received after the “$500 million” news, it appears that ProQuest and Domain (i.e. Michael Milken and friends) sold their stock at a significant profit.

So the questions remain: Did Dr. Scher (who worked for ProQuest and lead Novacea’s clinical trials) really believe that Novacea’s treatment was superior, as he claimed during his successful campaign to get the FDA to reject Dendreon’s drug? Did Michael Milken’s Prostate Cancer Foundation, which was an extension of ProQuest and snubbed its nose at Dendreon’s treatment, really believe that there were better treatments in the pipeline?

Did ProQuest and its affiliate Domain, which founded Novacea, ever care about producing a marketable drug? Or was Novacea a scam? A scam that was built on real science (though Dr. Scher was less than upfront about the results of his clinical trials, his efforts to develop Novacea’s treatment were no doubt sincere). A scam that was more sophisticated than those perpetrated by the bucket shops of yore, and whose every component may have been technically legal.

But nonetheless a scam – an old-fashioned pump and dump scam.

* * * CHAPTER 12 * * *

“Black Wednesday at the FDA.”

That is how Dr. Mark Thornton, a former medical officer in the FDA’s Office of Oncology Products, described the FDA’s decision not to approve Dendreon’s Provenge. In an op-ed for the Wall Street Journal, Dr. Thornton described vaccines such as Provenge as the “Holy Grail of cancer treatment.” Without directly referring to anyone by name, Dr. Thorton described Dr. Scher’s lobbying effort as “arrogant” and “unprecedented.”

Dr. Thornton added that when the FDA succumbed to that lobbying, “the dawn of a new era in cancer immunotherapy was driven back into the night. It will be years before we know the full impact of these decisions and how many cancer patients…have had their lives cut short as a result.”

This scandal infuriated many other physicians and patient advocates (with the exception of those affiliated with Milken’s Prostate Cancer Foundation). Some Dendreon supporters took to the streets.

On June 2, 2007, there was a protest in front of the American Society of Clinical Oncology. Two days later, several prostate cancer advocacy groups rallied in Washington. On June 6, there was yet another protest, this one attended by still more physicians who demanded to know why the FDA had failed to approve Dendreon’s treatment.

“I’d like to explain in the most basic of terms,” said Dr. Mark Moyad of the University of Michigan medical school, at the June 6 rally. “We think a mistake has been made. We are here in a friendly way to start the process of correcting that mistake.”

That word — “friendly” – seems to me to perfectly describe Dendreon’s supporters. I might add “intelligent,” and “fair,” and “engaged.” But the mainstream media played its customary role by portraying such advocates as vexatious wackos (notwithstanding the fact that many of Dendreon’s supporters were respected physicians).

“Oncologists do not usually need bodyguards…” began a story in the Washington Post, which was all about the Dendreon “controversy.” The gist of this story was that people advocating for prostate cancer patients might somehow be dangerous – that it was strange how vocal they were, it was strange that they used the Internet to get the word out – and Dr. Scher (the physician who helped derail Dendreon) feared for his safety. He had even received some “threats.”

Nowhere in the story was it suggested that a great many prominent doctors were saying that the FDA had made a “mistake” in failing to approve Dendreon’s application. Nowhere was it mentioned that Dr. Scher played a significant role in engineering this “mistake.” And nowhere was it mentioned that Dr. Scher was egregiously conflicted due to his financial ties to Michael Milken’s investment fund and Dendreon’s competitors, Novacea and Cougar Biotechnology.

Essentially identical stories appeared in the Philadelphia Inquirer, the New York Times, the Boston Globe, the Seattle Times, and on CNBC. Every one of these media outfits portrayed Dendreon’s supporters as potentially dangerous lunatics. Every one of them stated unequivocally that Dr. Scher had been “threatened.” Yet, not one of them specifically described the threats, and as far as I can ascertain, there were no “threats.”

Clearly, there was a new party line – Dr. Scher was the victim. Given the near verbatim repetition of this party line in so many newspapers, and given my experience working in the mainstream media, I can say with near certainty that this was the work of an orchestrated public relations campaign – a campaign to distract attention from what was really happening to Dendreon.

Meanwhile, Dendreon remained one of the most manipulated stocks on Nasdaq. On the day that the Washington Post story appeared, SEC data showed that criminal naked short sellers had sold, and failed to deliver, more than 13 million Dendreon shares. Following the mainstream media’s standard operating procedures, no mention was made of this phantom stock in any of the stories on the Dendreon “controversy.”

* * * * * * * *

By June of 2007, Dendreon’s stock price was averaging around $7 – down from its early April high of $25. There was no way the company could raise more money on the stock market, and so it had to significantly scale back its work on Neuvenge, a promising treatment that fought breast cancer in the same way that Provenge fought prostate cancer. In order to get enough cash to continue work on Provenge, Dendreon issued over $100 million worth of convertible bonds.

Sometimes, hedge funds that buy a company’s convertible bonds are well-intentioned – they want the company to succeed so that the company can repay the loan.

But, often, hedge funds that buy convertible bonds do not have the company’s best interests at heart. Indeed, Deep Capture has obtained an internal client presentation given by a well-known investment bank that states that the single largest segment of investors in convertible bonds are hedge funds that actually intend to increase their bets against the companies that they are financing.

A convertible bond is debt that can be “converted” into stock. A hedge fund lends a company, say, $100 million. As repayment, the hedge fund can either receive the $100 million plus interest at maturity, or instead it can receive, say, 10 million shares in the company.

If the share price is $8 at the time of the loan, those 10 million shares would be worth $80 million. But if the share price rises to $20, the hedge fund can convert his $100 million loan into $200 million worth of stock. If the hedge fund manager is a value investor who wishes the company well, he will make his loan and wait for the stock to rise.

But there are various ways that convertible bonds can be put to malevolent use. Suppose a group of hedge funds have launched a full scale short selling attack against a company, but the hedge funds want to short sell even more stock. To do that legally, the hedge funds must first locate more stock to borrow, and then sell it. But sometimes there is simply no more stock available for short sellers to borrow.

Now, suppose the share price has already been significantly hammered, so the company can no longer raise money through the stock market. The hedge funds know this. And the hedge funds are important clients of an investment bank. So the hedge funds and the investment bank hatch a plan.

It works like this: the investment bank tells the victim company that it can resolve the company’s cash problems by brokering a convertible bond offering. If the company agrees, the investment bank says, “great, but there’s just one hitch – you, the company, have to lend us, the investment bank, the shares that the company would normally keep on hand in case the bond holders convert.”

To assuage any fears, the investment bank might promise the company that it will not re-lend those shares to short sellers, but will merely sell them to long buyers – people who want to invest in the company. The company says, “fine,” and issues, say, $100 million worth of debt convertible to 10 million shares. The company also agrees to that “hitch” — so now the investment bank has wangled a “stock loan” agreement that gives it exclusive rights to borrow those 10 million shares until such time as the bond holders convert.

Meanwhile, the investment bank returns to that group of hedge funds, who agree to buy the convertible bonds as a means to extricating those 10 million shares from the company. Once the investment bank is in possession of those shares, it cannot (at least according to its agreement with the company) lend them to the hedge funds for purposes of short selling. But it can do one better. It can broker swap contracts that oblige counterparties to pay the hedge funds a certain amount of money in the event that the company’s stock price decreases in value.

Then, the investment bank dumps those 10 million shares into the market all at once, causing the stock price to further collapse. Meanwhile, the hedge funds and the investment bank might be engaging in naked short selling – selling stock that has never been borrowed by anybody (i.e. stock that does not exist).

If anyone asks about this illegal naked short selling, the hedge funds say they thought they had “a locate” on stock that they could borrow and deliver. If anyone asks the hedge funds to be more specific, the hedge funds say that they had “located” and planned to borrow those 10 million shares that the investment bank had borrowed from the victim company. If the SEC notes that the investment bank had an agreement not to lend those shares to short sellers, the hedge funds say they didn’t know about that.

Of course, the SEC rarely asks any of these questions, but the convertible bonds provide some immunity, just in case.

As the stock price hits rock bottom, the company depletes the cash it raised from the bond offering. And the only way for the company to receive new funding is to issue more convertible bonds to the hedge funds, or do one of those dreaded “death sprial” PIPE deals.

If this were a game of chess, it would now be “check” for the hedge funds. The company knows that its stock price and its financing depend entirely on the hedge funds, which are put in the position of being able to drive (and trade ahead of) the company’s business decisions. This scheme might even allow a set of hedge funds to take control of, say, a $700 million company, for a $100 million loan.

With the exception of the naked short selling, most of this scheme’s elements can be found in the standard PowerPoint presentations that some banks deliver to their hedge fund clients behind closed doors. The investment banks market the scheme as a way to profit from volatility in the stock. When the stock crashes, the hedge funds make money from the swaps and their short selling. If the stock subsequently increases in value, the hedge funds can convert their bonds and use some of the proceeds to pay the counterparties to the swaps.

But sometimes the hedge funds intend to fully destroy the company. They make plenty on their short positions and swaps, and their bonds pull in some money during the bankruptcy proceedings. Sometimes, during bankruptcy, the hedge fund lenders get their hands on company assets (such as blockbuster medical treatments) that are actually worth considerably more than what they spent on their bonds.

At other times, the ultimate goal is not to destroy the company outright, but to crash the stock, and then accumulate shares, giving the hedge funds still more influence over company decisions, and perhaps paving the way for a hostile takeover.

I do not know for certain the motivations of the hedge funds that bought Dendreon’s convertible bonds. I do not know if they engaged in naked short selling. After all, the identities of the naked short sellers and the real amount of failed trades they are generating are, as far as the SEC is concerned, still a big secret. Remember that the SEC says that releasing information about (illegal) naked short sales would reveal the (criminal) hedge funds’ “proprietary trading strategies.” And the SEC cannot have that.

I do know, however, that nearly every one of Dendreon’s convertible bond holders are connected in important ways to Michael Milken or the seven affiliated hedge fund managers who held large numbers of put options in Dendreon prior to the strange occurrences of March 2007. This raises the suspicion that the convertible bond holders were not typical investors (that is, investors who put in capital hoping that the company would prosper).

Instead, the fact that the buyers of the converts were part of the same network that was placing large bets against Dendreon (and taking steps, with help from Milken’s “philanthropy”, to derail Dendreon’s treatment for prostate cancer) raises the possibility that these bond investments were made as part of a strategy to manipulate Dendreon’s stock price down, during which time members of this network would (with help from Milken’s Prostate Cancer Foundation) pump up the stock prices of Dendreon’s “competitors” – the companies controlled by Milken and his friends.

In the two years that these shenanigans were going on, 60,000 American men died of prostate cancer, which seemed to be of no concern to this particular network of miscreants. But once the competing, Milken-connected companies had been thoroughly pumped, and then dumped (on the news that their treatments were worthless), it would perhaps be time to exert greater control over the one company–Dendreon–that actually had a treatment that could extend lives.

As we will see, members of the Milken network – some of the hedge funds that bought the convertible bonds, and some of the seven hedge funds that were betting big against Dendreon in 2007 – have, as a group, recently become the company’s largest shareholders. Their precise intentions, however, remain a mystery.

While we do not have photo-perfect pictures of what was going on behind the scenes of Dendreon’s bizarre trading (the SEC does not let that get public), we do know that this paradoxical play of participating in a convertible bond in order to further a manipulative scheme against a company, is in fact a standard play on Wall Street. Given this, we would be remiss not to name the colorful hedge funds that bought Dendreon’s convertible bonds.

* * * * * * * *

As we have covered, Milken crony Carl Icahn founded the options department at Gruntal & Company, which owed its existence to Michael Milken and was one of the more disreputable trading houses on the Street. Ultimately, Gruntal was found to have employed several traders with ties to the Mafia, and soon after, it was charged with a massive fraud and forced to pay what was then one of the largest fines in Wall Street history.

Many of Gruntal’s former employees ended up working for White Rock Capital, which was run by the alleged Russian mobster, Felix Sater, the fellow who was allegedly behind the threat to have Deep Capture reporter Patrick Byrne murdered if he did not end his crusade against naked short selling and the “deep capture” of important institutions.

As we also know, when Icahn left Gruntal, he handed over direction of the options department to Milken crony Ron Aizer. The first trader Aizer hired was Steve Cohen, who was reportedly investigated by the SEC for trading on inside information provided by Milken’s shop, and later became “the most powerful trader on Wall Street” — the fourth of those seven hedge fund managers prescient enough to bet big against Dendreon before Milken’s other cronies derailed the company in 2007.

The second trader hired by Aizer was a man named Andrew Redleaf, who later went on to co-found two hedge funds — Deephaven Capital Management and Whitebox Advisors. According to a media account posted on Whitebox’s website, Redleaf’s family kept its investment accounts at Drexel Burnham Lambert, where Michael Milken was then running his stock manipulation and junk bond empire. Redleaf was recommended to Aizer by Andy Stillman, who was then managing Drexel’s propriety options trading.

Minkow was eventually imprisoned for the ZZZZ Best fraud, and when he was released, he began a career as a self-described “fraud investigator.” He works in partnership with Sam Antar, the convicted felon who masterminded a massive fraud in the 1980s at an appliance retailer called Crazy Eddie. Antar, who is close to Milken and his network (members of which once tried to help Antar seize control of Crazy Eddie) now spends most of his time on the Internet, smearing and threatening people who work to expose the crime of naked short selling.

For example, Antar once posted on the Internet the names and address of Deep Capture reporter Judd Bagley’s young daughters. Antar writes with almost daily regularity that Deep Capture reporter Patrick Byrne is running a fraudulent company (Overstock.com), though he has produced nothing to support his claims, and every reputable person who has examined his arguments has concluded that they are absurd.

Meanwhile, Antar has littered the Internet with all manner of falsehoods about me—stating, for example, that I’m a drug addict and was fired from my last job. Ever the charmer, Antar has also let it be known that he is friendly with violent people, including those who once ambushed me, punched me in the face, and suggested that I should stop working with Patrick Byrne.

It is interesting to note that, these facts notwithstanding, in 2008 Fortune magazine saw fit to grace its pages with a highly flattering 2,738 word profile of Antar (“It Takes One to Know One”). Fortune did this even as it acknowledged that, “As would-be fraudbuster, Sam E. [Antar] has yet to notch his first kill. (Although in fairness he doesn’t hold himself out to be a full-time 10-Q detective. ‘I don’t have 40 people working for me like the SEC,’ he says.) He hasn’t brought any companies down or caused any regulators to open any investigations.”

That is, concerning a notorious swindler and convicted felon who threatens little girls, smears other journalists, is denounced by public officials, and who has not actually been the source of any credible investigation that Fortune can cite, Fortune published a perfectly complimentary puff piece.

As for the above-mentioned Andrew Redleaf, I noted that he is a founding partner in Deephaven Capital Management. In 2006, Deephaven was sanctioned by the SEC for short selling 19 public companies (almost all biotech firms) on inside information that his hedge fund colleagues were giving the companies “death spiral” PIPEs finance.

As you will recall, similar schemes have involved Milken crony Carl Icahn (the founder of Gruntal’s options department); Jeffrey Thorp (son of the Mafia-linked card counter who was the most important figure in Milken’s stock manipulation network during the 1980s); Milken crony Lindsay Rosenwald (who used to run the Mafia-linked D.H. Blair, the president of which was Milken’s former national sales manager); and Gryphon Partners (which was tied to the Mafia-linked, nine-fingered Anthony Elgindy, a naked short seller who is now serving an 11 year sentence for stock manipulation schemes and bribing two FBI agents).

My apologies for the repetition, but there are some who are new to this, and it is difficult for even the well initiated to keep track of so many miscreants, so permit me to remind the reader that Gryphon’s founder and Lindsay Rosenwald were among the seven colorful hedge fund managers who bet big against Dendreon in March 2007, just before the company was derailed by strange occurences engineered by Milken’s cronies. Also among those seven hedge fund managers was Steve Cohen, who was, earlier in his career, investigated for trading on inside information provided by Milken’s shop, and was the first trader hired at Gruntal by Milken-crony Ron Aizer.

Andrew Redleaf, the second trader hired by Aizer at Gruntal, is, remember, not just a co-founder of Deephaven Capital (sanctioned for short selling on inside information that companies were to receive dubious financing), but also the proprietor of Whitebox Advisors.

And Whitebox Advisors is among those hedge funds that “financed” (by purchasing its convertible bonds) a company called Dendreon, which suffered a two-year, sustained naked short selling attack while trying to bring to market a treatment for dying cancer patients.

* * * * * * * *

A hedge fund called DKR Management also bought convertible bonds issued by Dendreon. DKR was founded by Barry L. Klein and Gary S. Davis. Previously, Klein worked for Michael Milken as the President of Drexel Burnham Lambert Trading. Davis also worked for Milken at Drexel.

In later years, Klein and Davis founded the predecessor to AIG Trading Group, a unit of American International Group. AIG Trading Group was later run by Joseph Cassano, who had also been a Milken employee at Drexel.

While at AIG, Cassano sold tens of billions of dollars worth of credit default swaps (contracts that pay out if a company defaults on its debt) to hedge funds and investment banks.

Rolling Stone magazine’s Matthew Taibbi, who is one of the mainstream media’s finest journalists, was among the first to establish that AIG Trading Group and Milken crony Cassano destroyed AIG, which ultimately had to be nationalized by the U.S. government – greatly contributing to the collapse of the financial system last fall. Since then, several reports have also implicated Cassano’s Milken-tied predecessors, Klein and Davis.

Meanwhile, various government investigations are seeking to know whether short sellers acquired and manipulated the prices of AIG’s credit default swaps as a way to weaken their target companies – including Lehman Brothers and Bear Stearns. The question that remains unanswered is whether the short sellers that bought credit default swaps from Milken cronies Cassano, Klein and Davis were also members of the Milken network (which would mean that some members of the Milken network wrecked the world while the other members of the network bet that they would).

Another highly significant factor in the collapse of the financial system – as can be discerned from statements by countless officials and by reports in virtually every newspaper in the land, though the newspapers seem content not to investigate the matter or state this explicitly – was the naked short selling of AIG, Bear Stearns, Lehman Brothers, Fannie Mae, Freddie Mac, and hundreds of other companies.

In the years leading up to the financial cataclysm (and during the time when Dendreon was under attack by naked short sellers), certain hedge funds orchestrated an effective public relations campaign aimed at covering up the crime of naked short selling. As part of this public relations campaign, the hedge funds would regularly trot out a certain Yale professor, who would do his utmost to defend the criminals.

This professor’s favorite stratagem was to divert discussion away from illegal naked short selling, and repeat, over and over, that legal short selling was good for the markets–a fact that was never in dispute. The professor’s capacity for obfuscation was unmatched, but he nonetheless became a favorite source for some members of the media. He appeared regularly on CNBC and was quoted in dozens upon dozens of articles – all of which communicated the non sequitor that illegal naked short selling is not bad for the markets because legal short selling is good for the markets. Of course, this is like arguing that sexual harassment is not bad because sex is good.

The name of this professor is Owen Lamont. To this day, the professor is still sought out by the press, which dutifully regurgitates his baloney. But the professor does not work for Yale anymore.

Now he works for the above-mentioned DKR Management, one of the Milken-connected hedge funds that bought Dendreon’s convertible bonds while Dendreon was brutally attacked by criminal naked short sellers.

* * * * * * * *

There are interesting stories to be told about most every hedge fund that bought Dendreon’s convertible bonds. One of them, Eagle Rock Capital, run by an Iranian fellow named Nadir Tavakoli, was once a controlling investor in the International Fight League, a promoter of ultimate fighting matches. The other controlling investor in the International Fight League (which went bankrupt amidst allegations of ultimate fighting’s connections to the Japanese Yakuza and stories that fighters were committing suicides and murders at alarming rates) was a “Russian whiz kid” (according to the media) named Dmitry Balyasny.

The first things to know about Dmitry Balyasny are that he is closely affiliated with Steve Cohen, and he is the seventh of those seven hedge fund managers who were betting big against Dendreon by holding put options on the company’s stock, after the FDA advisory panel had recommended that Provenge be approved, and before Milken’s cronies successfully lobbied the FDA to ignore that recommendation. So I will return to Balyasny soon.

But first, let’s continue with our list of hedge funds that held Dendreon’s convertible bonds.

One was GLG Partners. As we know from emails acquired in a lawsuit, GLG Partners received updates on Steve Cohen’s attack on Canadian insurer Fairfax Financial, so it would be unsurprising if GLG was also clued in to Cohen’s attack on Dendreon.

Recall also that (shortly before GLG bought Dendreon’s convertible bonds) French authorities fined GLG for being part of an insider trading ring that included UBS O’Conner (a unit of UBS investment bank, which, until March, 2007, was led by former Milken employee Ken Moelis) and Meditor Capital, a hedge fund (also, of course, with ties to Steve Cohen) that had just made a large investment in Novacea, the prostate cancer company that was then being promoted (by Milken’s fund and Milken’s “philanthropy”) as a competitor to Dendreon. In short, GLG was “in the mix.”

Another outfit that bought lots of Dendreon’s convertible bonds (shortly after it was caught running an insider trading ring with Meditor and GLG Partners) was…UBS O’Conner. Meanwhile, of course, the research department of UBS was continuing to trash Dendreon in its reports.

Then there was Quattro Partners, which bought Dendreon bonds convertible into a more than a million Dendreon shares. The founding partner of Quattro is named Michael Baldock. He had a long career in biotech investing after spending time as an investment banker at Michael Milken’s Drexel Burnham Lambert.

* * * * * * * *

Another of the big investors in Dendreon’s convertible bonds was Forest Investment Management, a hedge fund controlled by a man named Michael Boyd. Prior to founding Forest, Boyd was a partner in an outfit called Forum Capital Markets. Boyd’s co-founder in Forum was C. Keith Hartley, yet another of Milken’s disciples from Drexel, Burnham Lambert.

Boyd was also the co-founder of a brokerage called McMahan Securities. The vice president of that operation was Santo Maggio, who later became chief executive officer of Refco Securities, the brokerage that was allegedly processing the phantom stock sales of Rhino Advisors, which illegally naked shorted companies after providing them with finance brokered by Milken crony Carl Icahn’s Ladenburg Thalmann. When Refco was found to be fraudulently hiding $400 million worth of liabilities (liabilities that many believe were related to naked short selling), Maggio pled guilty to two counts of securities fraud, one count of conspiracy, and one count of wire fraud.

Another of Michael Boyd’s many accomplishments is his son, Roddy. Refco employed Roddy as a trader, perhaps as a favor to his father’s former co-worker, the criminal Santo Maggio.

But Roddy soon abandoned the securities business to become a business journalist – first at the New York Post and now at Fortune magazine. Roddy Boyd is a key figure among the small coterie of journalists who turn up repeatedly in Deep Capture‘s analyses.

Like all members of the coterie, Roddy has spent several years trying to cover up the naked short selling scandal, ridiculing anyone who mentions the crime or the remarkable coincidence of companies appearing on the Reg Sho list (the SEC’s list of companies suffering from naked short selling) when those companies are the targets of a select group of hedge funds whose names will be familiar to the reader who has made it this far.

In addition to covering up naked short selling crimes, Roddy writes hatchet jobs on the public companies targeted by this same select group of short selling hedge funds. The sources of the information in Roddy’s stories are, of course, the short sellers themselves, and most of the short sellers are, as has been explained over and over, tied to Michael Milken or his close associates.

For example, Roddy spent a great deal of time working with a soon-to-be arrested criminal named Spyro Contogouris, who had been hired by a subsidiary of Steve Cohen’s SAC Capital, to sabotage, harass, and trash Fairfax Financial.

As mentioned, we have obtained a great number of emails between Cohen, Jim Chanos of Kynikos Associates, and others in the network that was attacking Fairfax. In one email, hedge fund manager Chanos writes to journalist Roddy Boyd, “your courtesy was a boon to me. Thank you!”

With the exception of Roddy’s particular clique of journalists, it is not typical for reporters to receive thank you notes for the “courtesies” that they have extended to help hedge funds make money.

Another holder of Dendreon’s convertible bonds was CNH Partners, run by Todd Pulvino, who used to work for Grosvenor Capital. Grosvenor is managed by Scott Lederman, who was the grad school roommate of Steve Cohen and later the chief operating officer of Cohen’s SAC Capital. While Pulvino was presenting himself as a legitimate investor in Dendreon’s debt, was he in touch with Steve Cohen, who had bet big against Dendreon right before Provenge was derailed by the unprecedented lobbying effort of Milken’s other cronies?

We can’t say. And we can’t say who was illegally naked short selling Dendreon’s stock. That, remember, is a big secret – “proprietary trading strategies.”

* * * * * * * *

On October 12, 2007, Dendreon, still desperate for capital to continue clinical trials that might eventually help its cancer treatment receive FDA approval, signed the paperwork on its first PIPE deal. A dreaded PIPE – the sort of deal that dilutes equity and tends to attract naked short selling that sends a company’s stock into a “death spiral.”

The provider of this PIPE finance was the Azimuth Opportunity Fund, managed by an outfit called Acqua Wellington Asset Management.

Acqua Wellington is controlled by a “prominent” investor named Isser Elishis. In an otherwise flattering article, Herb Greenberg – a journalist whose entire career (at TheStreet.com, MarketWatch.com and CNBC) was devoted to granting “courtesies” to hedge funds in the Milken network – described Elishis as the “banker of last resort.”

Herb, who disappeared from the world of journalism after he was exposed by Deep Capture, now owns a company that ostensibly sells financial research to hedge funds in the Milken network (or, arguably, merely receives payment from them for the extensive string of “courtesies” that Herb extended while working as a journalist).

Among Azimuth’s first forays into the markets was an investment in a company called SulphCo, which claimed to have a method for turning sulphrous crude into clean-burning oil. Elishis collaborated on this deal with SulphCo’s principal investor, Zev Wolfson, who, you will recall, was the investor who financed Milken cronies Carl Icahn, Saul Steinberg, John Mulheren, and various brokerages tied to the Mafia, naked short selling, or both.

SEC data shows that on the day that Dendreon signed its PIPE deal with Azimuth, naked short sellers flooded the market with more than 2 million phantom shares. During the following week, more than a million Dendreon shares “failed to deliver” every day, despite (or perhaps because of) the news that Dendreon had enrolled 500 patients in a trial to confirm its earlier positive results, putting Provenge back on the track to FDA approval.

* * * * * * * *

In the late 1980s, a fellow named Jeffrey Yass and his two friends, Eric Brooks and Kenneth Brodie, set up a partnership to place bets at horse racing tracks across the country. On one single day at Sportsman Park in Chicago they pulled in winnings of more than $600,000. This seemed somewhat excessive, so Sportsman Park banned the three friends from its premises. The punters filed a lawsuit claiming that Sportsman Park had violated their rights to visit a public facility.

At any rate, Jeffrey Yass and Eric Brooks eventually abandoned the business of betting on horse races and instead pursued careers on Wall Street. Now they are “prominent” investors, the proprietors of a mid-sized investment and trading house called Susquehanna International.

In the spring of 2008, Susquehanna was introduced to Dendreon by a placement agent, Lazard Capital Markets. It is not clear why Dendreon would want to do business with Lazard. After all, Lazard was home to the singing Joel Sendek, who had been busily trashing Dendreon in his research reports.

Sendek had also been trumpeting Dendreon’s competitor, Cougar Biotechnology, as the next big thing in cancer treatment. In turn, Cougar Biotechnology (the company then controlled by Milken crony Lindsay Rosenwald, formerly of the Mafia-affiliated pump-and-dump shop D.H. Blair) had been quoting Sendek in its SEC filings.

Sendek’s endorsement, Cougar seemed to be suggesting, was evidence that the company was making progress toward bringing its prostate cancer treatment to market. This was odd, because most pharmaceutical companies use data collected from clinical trials to demonstrate this, not quotes from singing Wall Street analysts.

Meanwhile, it was widely understood that Lazard’s stock loan department was one of the go-to shops for hedge funds looking to short sell Dendreon’s shares. We cannot say that Lazard was loaning phantom stock to the short sellers (if it were, that would be a big secret), but Lazard’s coziness with short sellers ought to have given Dendreon pause.

There was also the fact that Lazard Capital had only recently been spun off from Lazard Ltd. Given that the two operations remained closely affiliated (sharing business and so forth), it might have been of some concern that the chairman of Lazard Ltd. was Bruce Wasserstein, a close associate of Michael Milken.

In “Den of Thieves,” James Stewart, the Pulitzer Prize winning author, quotes a criminal named Denis Levine as saying that Wasserstein was “owned” by Milken’s famous co-conspirator, Ivan Boesky. Given that Denis Levine was indicted for participating in Boesky’s insider trading schemes, one would think he knew of what he spoke, but there is no hard evidence to support his allegation.

In any case, Dendreon followed Lazard’s advice, and did a “registered direct offering” with Capital Ventures International, an affiliate of Susquehanna, the firm founded by Yass and Brooks. A “registered direct offering” is similar to a PIPE, the difference being that the securities sold to the investor are registered with the SEC and immediately tradable.

For most of March 2008, naked short sellers were failing to deliver less than 500,000 shares per day. As negotiations for the “registered direct offering” were underway, the amount of phantom stock gradually increased. And on the day the deal was signed, April 3, at least 1.6 million phantom shares had been sold into the market and remained undelivered.

For the next two months, more than one million Dendreon shares remained “failed to deliver” every day. This despite (or perhaps because of) the fantastic news, on March 12, 2008, that the FDA had agreed to an amended “Special Protocol Assessment,” which would enable the company to release, one year ahead of schedule, the results of an “IMPACT” trial that seemed likely to confirm the company’s Phase 3 trials showing substantial evidence that Provenge was safe and effective.

As Dendreon’s enemies must have known, it would soon be impossible to stymie the company with arguments about data, but stock manipulators were not yet ready to end their campaign against the company.

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In December 2007, three U.S. Congressmen — Mike Michaud (D-Maine), Dan Burton (R-Indiana) and Tim Ryan (D-Ohio) — called on the House Commerce Committee to investigate why the FDA failed to approve Dendreon’s treatment for prostate cancer. Referring to Dr. Scher and his ally, Dr. Hussain, the lawmakers said in a letter that “there are reasons to believe that serious ethics rules were violated by two FDA advisory panel members in their decision [to vote and lobby against Dendreon] and that these violations played a role in the subsequent FDA decision not to approve Provenge at this time.”

A bipartisan group of 12 additional Congressmen eventually signed on to the request for an investigation. And in February 2008, as outrage over this scandal spread through the medical community, a group of seven respected doctors, calling themselves “Physicians for Provenge” wrote a letter to the ranking members of the House Commerce Committee, suggesting that the investigation should urgently proceed.

“Please consider why our colleagues and we KNOW that Provenge works and why tens of thousands of men with late stage prostate cancer should be given access to it,” the physicians wrote. Noting the “egregious conflicts of interest” of Dr. Scher and Dr. Hussain, the “Physicians for Provenge” added that the “FDA should be carefully assessing risk versus reward for the treatment of terminally ill patients, rather than ‘gate keeping’ based on outdated statistics, reducing short-term health costs or backroom shenanigans.”

Nonetheless, Commerce Committee Chairman John Dingell denied the requests for an investigation. To justify this decision, Dingell wrote in a letter to the committee that an “investigative hearing prior to an agency’s final decision runs the risk of interfering with the normal regulatory process.”

Apparently, it was fine if FDA-contracted doctors and government officials tied to Michael Milken corrupted the normal regulatory process by obfuscating approval standards (“substantial evidence” versus “proof”) and by drafting unsolicited post-vote letters with back-channel help from a government employee who was weeks away from taking a new job created by Michael Milken. But investigating such improprieties would corrupt the regulatory process, in the eyes of Commerce Committee Chairman John Dingell.

Dingell also pointed out that “a new law strengthening conflict of interest provisions now governs FDA panels.” Unfortunately, that law was passed in September 2007, some months after Milken’s conflicted allies derailed Dendreon’s application.

In any case, it is not clear that the old conflict of interest provisions were not violated in the Dendreon case. Dr. Scher received a conflict of interest waiver, but in his application for that waiver he did not mention his financial ties to Milken’s ProQuest Investments. There should have been an investigation into why that waiver was granted. And while he was at it, Representative Dingell should have investigated the illegal naked short selling of Dendreon and the “backroom shenanigans” of Milken’s captured officials at the FDA and the National Cancer Institute.

At any rate, while the congressional investigation was being stopped in its tracks, Milken’s Prostate Cancer Foundation was becoming more brazen.

In March 2008, for example, the Prostate Cancer Foundation sent out a peculiar mass mailing. Written by a cardiologist on Prostate Cancer Foundation letterhead, the mailing began, “I’ll never forget the day my 5-year-old son came home from school, worried. One of the other kids told him I was going to die.”

The letter went on to describe the horrors of being diagnosed with prostate cancer. So far, all kosher. But then came the strange part – the charity’s solicitation explicitly promoted a mostly untested experimental treatment that was being developed by a public company that was considered to be one of the few competitors to Dendreon. The treatment was called GVAX, and the company developing it was called Cell Genesys.

The author of the letter noted that during his treatment, he had “learned about some of the groundbreaking research projects supported by the Prostate Cancer Foundation, such as GVAX, a drug now in phase 3 clinical trials that boosts the immune system to fight off prostate cancer cells.”

Notice that the name of the drug – GVAX – was printed in boldface letters, so nobody could miss it. Notice, too, the underlining, which stressed that this treatment (as opposed to others, such as Dendreon’s) was endorsed and supported by the Prostate Cancer Foundation. And, finally, notice the unequivocal statement that GVAX works – that it “boosts the immune system” and is able to “fight off” cancer.

Lest there be any question that Milken was eager to promote GVAX, the Prostate Cancer Foundation, soon after, began distributing flyers at supermarkets and shopping malls with a similar message. “My 5-year-old didn’t want to lose his daddy,” read the flyers, which then proceeded to describe a “groundbreaking” new medicine – GVAX.

At the time, Cell Genesys was nowhere near bringing GVAX to market. It had just finished phase 2 clinical trials on a total of 65 patients. Lab results showed that GVAX might increase prostate cancer antibodies, but they did not show that the immune system was actually boosted in such a way as to better “fight off” cancer or improve survival. Phase 3 trials, which would determine whether GVAX actually improved the health of patients, had just begun.

But if you were an average Joe who read those flyers – or a wealthy Mary who received that solicitation in the mail – you’d be mighty convinced that Cell Genesys was the next big thing in cancer therapy. You might even be tempted to buy its stock.

* * * * * * * *

When Milken’s Prostate Cancer Foundation began distributing his fliers promoting GVAX, a number of hedge funds had accumulated large numbers of shares in Cell Genesys.

One of these was Millennium Management, the hedge fund that had been founded by the fellow who planned to murder Ivan Boesky when it seemed that Boesky might cooperate with the authorities in their case against Milken. Again, Millennium is one of those seven hedge funds that had the foresight to own put options in Dendreon back in March 2007, right before Dendreon’s treatment was unexpectedly scuttled by the FDA.

Another hedge fund with a big stake in Cell Genesys was Forest Investment Management, owned by Michael Boyd, the father of hedge fund shill Roddy Boyd, currently of Fortune Magazine. Michael Boyd, remember, had previously been involved in two big ventures – one with a former Milken colleague from Drexel Burnham; the other with Santo Maggio, the furture convicted criminal CEO of Refco Securities.

Hedge fund Perceptive Advisors also held a moderately large stake in Cell Genesys. Recall that Perceptive was then run by Joseph Edelman, who was not only another one of those seven hedge fund managers who held put options in Dendreon, but was also simultaneously serving as a trader for Paramount Capital.

As you might recall, the vice president of Paramount Capital was a former employee of Milken crony Steve Cohen, who was also one of those seven hedge fund managers betting big against Dendreon. The owner of Paramount, of course, is Lindsay Rosenwald, who used to run the Mafia-controlled D.H. Blair with Milken’s former national sales manager, and controlled Cougar Biotechnology, another Dendreon competitor promoted by the Prostate Cancer Foundation.

Another big buyer of Cell Genesys shares was Mazama Capital, a hedge fund based in California. In December 2006, Mazama also owned 2.1 million shares of Dendreon. It dumped more than a million of those shares sometime before or immediately after the March advisory panel meeting, when it seemed certain that Dendreon would receive FDA approval.

Only one other hedge fund dumped similar quantities of Dendreon shares at that time. It was JL Advisors, which is controlled by the above-mentioned Steve Cohen. This dumping of shares contributed to the selling volume that was amplified by the call options exercised by the employee of Paramount Capital, and by whoever was selling massive amounts of phantom stock in Dendreon.

Then there was Renaissance Technologies, which held 800,000 shares in Cell Genesys when Milken’s “philanthropy” began promoting the company. The CFO of Renaissance is James Rowen, who was previously the chief financial officer of SAC Capital, the hedge fund run by the above-mentioned Steve Cohen, who is known to be maniacal about making sure that his former employees remain satellites of his trading empire.

Meanwhile, hedge funds Balyasny Asset Management and Visium Capital held a combined 12 million shares of Cell Genesys. Balyasny and Visium have overlapping ownership (Dmitry Balyasny is a partner in both hedge funds) though they don’t generally disclose that in their SEC filings.

Dimitry Balysasny is a close associate of Steve Cohen. He has employed some of those former SAC Capital traders and managers with whom Cohen maniacally maintains relationships. And he and Cohen have attacked the same companies.

As I mentioned, Balyasny was one of our seven hedge fund managers with large numbers of put options in Dendreon. I will return to him, because this enigmatic Russian might have more surprises in store for Dendreon.

* * * * * * * *

Three weeks after Milken’s Prostate Cancer Foundation began publicly promoting Cell Genesys’s virtually untested prostate cancer treatment, Cell Genesys announced that it had signed a gargantuan $320 million deal to develop and commercialize GVAX with Takeda Pharmaceutical, the Japanese biotech giant.

The press reported this deal dutifully and uncritically, making it sound like GVAX was the next big thing. The stock price soared, earning large profits for the Milken-network hedge funds that had invested in Cell Genesys.

But just as there was something fishy about the Milken-invested Novacea and its $500 million deal with Schering Plough, so too did the “$320 million” Cell Genesys deal deserve a hearty dose of skepticism.

For starters, only days before Cell Genesys announced the Takeda deal, Takeda had bought a company called Millennium Pharmaceuticals. Millennium had been transformed into Takeda Pharmaceutical Capital Ventures. It was Takeda Capital Ventures, not the Takeda parent company, that signed the deal with Cell Genesys. In other words, it was almost certain that Millennium’s management, most of whom had been retained by Takeda Capital, orchestrated the whopping $320 million deal.

That was rather strange because Millennium had been founded by a man named Mark Levin. It was Levin who orchestrated Millennium’s merger with LeukoSite, the biotech company that belonged to Marty Peretz, the Boesky-Milken crony who founded TheStreet.com. And more important to this particular episode, it was Levin who had founded Cell Genesys. He founded the company basically by investing in himself (just as Domain Associates had created the Milken-invested Novacea out of thin air).

So, assuming Levin still had influence over Millennium/Takeda, and assuming he was still invested in Cell Genesys, he had just orchestrated a deal to use other people’s money to invest $300 million in himself.

Or, at least Cell Genesys’s press release said that Takeda (which was, in fact, Millennium) was going to “pay Cell Genesys an upfront payment of $50 million and additional milestone payments totaling up to $270 million…Takeda [actually Millennium, now known as Takeda Capital Ventures] will pay Cell Genesys tiered, double-digit royalties based on net sales of GVAX immunotherapy for prostate cancer…”

Sounds good, doesn’t it? Sounds like those “net sales” are imminent, right? In fact, just as the Milken-invested Novacea’s $500 million deal was dependent on clinical trials showing good results, so too was Cell Genesys’s big deal with itself dependent on the company producing some evidence that it’s drug actually worked. The operative phrase in that press release was “milestone payments totaling up to $270 million.”

Of course, just three months later, Cell Genesys announced that it had halted its trials of GVAX after its Independent Data Monitoring Committee, in a “routine safety review meeting,” observed “an imbalance of deaths…” In other words, GVAX was not helping patients. It was killing them. And, of course, the $270 million worth of “milestone payments” announced with so much fanfare were unceremoniously canceled.

Either before this announcement, or immediately after, the big investors in Cell Genesys – Mazama, Balyasny, Millennium, Perceptive Advisors – all dumped their shares. Given the big boost those shares got from Milken’s Prostate Cancer Foundation promotions and the giddy announcement that Cell Genesys would receive $330 million, we can assume that those investors made a nice profit on their sales, just as Milken’s ProQuest and affiliated funds made nice profits on their sales of Novacea.

It seems to me that Cell Genesys, like Novacea, was a sophisticated pump and dump scam, aided by Michael Milken’s “philanthropic” outfit, the Prostate Cancer Foundation.

Which brings us to Cougar Biotechnology, the third Dendreon “competitor” promoted by Milken’s Prostate Cancer Foundation. Cougar Biotechnology, as we know, was controlled by Lindsay Rosenwald, who used to help run D.H. Blair, the Mafia-linked pump-and-dump shop whose two vice chairman pled guilty to securities crimes, and whose president was Milken’s former national sales manager.

D.H. Blair was indicted on 173 counts of securities fraud, and it was notorious for pumping and dumping biotech companies with no real medicine. But who knows? Maybe Cougar has a genuine product. It is hard to say at the moment, and will remain that way for years to come, because its prostate cancer treatment remains virtually untested.

In any case, just last month, Cougar, no doubt aided by the Prostate Cancer Foundation’s vigorous endorsements, wangled a $1 billion deal to merge with Johnson & Johnson, so Rosenwald and friends did quite well on their investments.

Remember that while Milken’s Prostate Cancer Foundation was using unwitting donors’ money to promote Novacea, Cougar Biotechnology, and Cell Genesys, its top officials, and perhaps Milken himself, were actively seeking to derail Dendreon, the one company that actually had a promising treatment for prostate cancer. This was certainly to the benefit of the short sellers (some of whom were illegally naked short selling) and the buyers of put options who were betting big against Dendreon

Meanwhile, it should be noted that Cougar Biotechnology experienced almost no naked short selling, according to SEC “failures to deliver” data. The Milken-invested Novacea also experienced virtually zero naked short selling, even after it announced that its treatment was killing people. The same goes for Cell Genesys — relatively little naked short selling, even when its treatment flopped.

The miscreant party line is that hedge funds do not engage in naked short selling to manufacture phantom stock. The party line is that most “failures to deliver” are the result of mechanical “errors.” It’s funny how those “errors” tend to occur when miscreants in a certain network are short a company. It’s also funny that those “errors” don’t happen to companies in which Milken and his cronies are invested.

If only there were a pattern.

* * * CHAPTER 14 * * *

In July 2008, not long before Cell Genesys announced that its drug was killing people, CNBC’s Jim Cramer called Dendreon a “dog.” Cramer, of course, did not mention that the illegal naked short selling of Dendreon was continuing apace. Throughout that month, more than 1 million Dendreon shares “failed to deliver” every day, according to SEC data.

At the end of August 2008, after Cell Genesys announced that its drug was killing people, Milken’s Prostate Cancer Foundation posted a story that suggested that this failure was a sign that Dendreon could be in trouble, too. Clearly, the Prostate Cancer Foundation, whose top officials had done so much to derail Dendreon in 2007, were not eager to see the company’s treatment reach patients.

Not once did the Prostate Cancer Foundation note that the difference between Dendreon and the three companies promoted by the Prostate Cancer Foundation was that Dendreon had provided heaps of evidence that its treatment actually worked.

In October 2008, Dendreon released still more favorable data. Its Independent Monitoring Committee’s studies were showing (as had the company’s phase 3 trials in 2007) that Provenge was safe, and offered a significant survival advantage over a placebo.

Meanwhile our two favorite financial analysts – the singing Sendek and Jonathan Aschoff – continued to reiterate their sell ratings on Dendreon.

The attacks continued through March 2009, which is when we were treated to the reappearance of Matthew Herper, the Forbes reporter who had dismissed Dendreon during those strange occurrences in April 2007. Now, Herper published a story in which he made it clear that Dendreon’s treatment would not, and should not, be approved by the FDA.

In support of his claims, he cited the analysis of Thomas Fleming, the fellow who had, in April 2007, along with Dr. Scher and Dr. Hussain, written a missive to the FDA that ended up in The Cancer Letter. To show that Fleming (who is a biostatistician, not a physician) was not the only “expert” opposed to Dendreon’s treatment, Herper cited several other “experts” – Susan Ellenberg, Donald Berry, and Janet Wittes – who had views that were remarkably similar to Fleming’s.

What Herper did not mention is that Susan Ellenberg had co-authored a book with Fleming, Janet Wittes was credited with editing that book, and that book enthusiastically cited the work of Donald Berry. Clearly, these “experts” had worked together to make sure that one message was whispered in Herper’s ear. Meanwhile, Berry was assisting clinical trials of Abiraterone, the drug that was under development by Dendreon’s competitor, Cougar Biotechnology, which was then still controlled by Lindsay Rosenwald — the son-in-law of the Mafia-connected “king of stock fraud.”

While Herper was working on his article, John Stewart of the “Daily Show” began exposing Jim Cramer as a fraud. This created quite a stir, and in the midst of it Cramer went on CNBC to tout none other than….Cougar Biotechnology. Cramer said he thought Cougar was the next big thing in prostate cancer treatment, and everybody should load up on its stock.

Meanwhile, with Novacea and Cell Genesys killing people, Milken’s “philanthropic” outfit was now directing much of its energy to promoting the mostly untested treatment then being hawked by Cougar Biotechnology.

Cougar’s treatment “has recently attracted global media coverage,” began one Prostate Cancer Foundation press release, which described the treatment as “a promising experimental medication with the potential to treat patients who have failed conventional medical treatment for advanced prostate cancer…”

The press release continued: “The [Prostate Cancer Foundation] Therapeutic Clinical Investigation Consortium played an important role by accelerating US clinical testing of this new agent in Phase II clinical trials….In Phase 1 studies, [Cougar’s treatment] exhibited the potential to attenuate disease progression and shrink tumors.”

Actually, the studies were not quite so encouraging as Milken’s foundation would have one believe. Abiraterone had been tested on a total of 30 patients. These patients purportedly experienced declines in levels of “prostate specific antigen,” but this is a long way from demonstrating that Cougar’s treatment “attenuates disease” or “shrinks tumors.” As for that “potential to treat patients,” it will be at least two years before Cougar has enough data to submit an application for FDA approval.

For the sake of prostate cancer patients everywhere, Deep Capture hopes that Cougar’s drug proves to be successful. We wish merely to note the different reception the network of Milken cronies delivers to a drug like Provenge, whose supporting data is ample and overwhelmingly positive, versus the opinions the network expresses about a drug whose data is preliminary and inclusive, but whose investors hail from the Milken network.

We also wish to reiterate that Milken’s Prostate Cancer Foundation and people tied to Milken gave ringing endorsements to companies – Novacea, Cell Genesys, and Cougar Biotechnology – right before those companies entered into purportedly massive deals with major pharmaceutical companies. In the cases of Novacea and Cell Genesys, those massive deals were cancelled soon after they were signed because the companies’ treatments were shown to be ineffective.

Yet, in all three cases, investors with ties to Milken or his close associates made large fortunes selling out their stock soon after the companies received over-the-top endorsements from the Prostate Cancer Foundation. Meanwhile, the Prostate Cancer Foundation, whose officials had played a key role in derailing Dendreon back in 2007, continued to snub its nose at Dendreon’s Provenge, the one treatment that could be safely and effectively administered to patients – right away.

* * * * * * * *

It is not clear if Milken himself was invested in Cougar, but Dr. Samuel Saks, who was a director on Cougar’s advisory board, was also a board member of Milken’s fund, ProQuest Investments. Three other members of Cougar’s advisory board were doctors affiliated with Milken’s “philanthopy,” the Prostate Cancer Foundation.

In addition to Rosenwald, the biggest investors in Cougar Biotechnology have included Millennium Management (the hedge fund that was co-founded by the guy who was going to murder Ivan Boesky, and later died of an early heart attack) and Visium Capital, which is co-owned by Dimitry Balyasny and Jacob Gottleib.

As noted, Millennium, Visium and Balyasny were also among the largest shareholders in Cell Genesys when the Prostate Cancer Foundation began promoting that company’s treatment, GVAX, in mass mailings and flyers handed out in front of shopping malls. Millennium’s manager and Dmitry Balyasny, meanwhile, were among the seven traders who were betting big against Dendreon in March 2007.

Gottleib, the co-owner of Visium, is something of a mystery man. I have been able to find little information about his background.

The few media stories about Balyasny make him seem like he is a “prominent” investor – and a poster boy for the American dream. Born in Russia, he came to America as a young man and soon started raking in the bucks as a “whiz kid” investor. In addition to Visium, Balyasny is the proprietor of Balyasny Asset Management and BAM Capital. Some of Balyasny Asset Management’s employees — including, for a period of time, the fund’s chief risk officer — have come from SAC Capital, the hedge fund run by Milken crony Steve Cohen.

A great many of Balyasny’s other employees were hired from a hedge fund called Magnetar Capital. The senior partner and investment committee chairman of Magnetar is Michael S. Gross, who was previously a founding partner of Apollo Advisors, the investment fund run by Milken crony Leon Black.

As you will recall, Leon Black funded the new Milken “philanthropic” foundation that hired National Cancer Institute prostate cancer chief Alison Martin after she helped the chairman of Milken’s Therapeutic Consortium foil Dendreon’s FDA application. Leon Black is also a business partner of Felix Sater, the alleged Russian mobster who once stuck a broken stem of a wine glass through a stock broker’s face and then went on to run White Rock Partners, a Mafia-infested brokerage that was indicted for manipulating stock in cahoots with the above-mentioned Lindsay Rosenwald’s D.H. Blair.

Prior to starting his own hedge funds, Balyasny was the top trader at an outfit called Schonfeld Securities, the proprietor of which is a man named Steven Schonfeld. Prior to founding his firm, Schonfeld worked for Blinder Robinson (then known on the Street as “Blind’em and Rob’em”). Blinder Robinson was among the first firms to be shut down by the Feds when they began investigating a network of Mafia-linked brokerages that included Rosenwald’s D.H. Blair and Sater’s White Rock Capital.

Schonfeld worked at Blinder Robinson with Anthony Elgindy, the criminal naked short seller who was was later sentenced to prison for stock manipulation and bribing FBI officials. As you will recall, Elgindy appeared for his sentencing missing a finger – reportedly because the Russian Mafia forced him to saw it off, giving him something on which to meditate while he served his 11 years in jail. Meanwhile, the Elgindy investigation led the authorities to other hedge funds, such as Gryphon Partners, whose manager was later among the few who bet big against Dendreon.

As should be clear by now, it is significant that a preponderance of the hedge funds that bet big against Dendreon, and a preponderance of the hedge funds that were invested in the three Milken-promoted companies – Cell Genesys, Novacea, and Cougar Biotechnology – were part of the same network. And it is significant that much of this network seems to be centered around Michael Milken and also Steve Cohen, who became the “most powerful trader on Wall Street” some years after he was investigated by the government for trading on inside information provided to him by Milken’s shop at Drexel Burnham.

Permit me to repeat a few facts: Cohen was once the top earner for Gruntal & Company, which was simultaneously employing several traders who were later tied to the Mafia. When Gruntal was indicted for embezzling millions of dollars, many of its former employees went on to fill the ranks of White Rock Capital, run by the alleged Russian mobster Felix Sater (he with the broken wine glass).

Cohen, meanwhile, had left to start his own hedge fund empire. Cohen’s hedge funds have helped pump stocks promoted by D.H. Blair, which was eventually indicted on 173 counts of securities fraud and implicated in a Mafia stock manipulation scheme that was orchestrated by White Rock Capital.

Lindsay Rosenwald, who is the son-in-law of D.H. Blair’s founder and a former top executive of D.H. Blair, was not only the controlling shareholder of Cougar Biotechnology, but also the proprietor of a hedge fund called Paramount Capital. The vice president of Paramount was formerly a top trader for Steve Cohen’s SAC Capital. The vice president of the above mentioned Millennium Management is also a former top trader of SAC Capital.

And Cohen, who is maniacal about his working relationships, is on close terms with Schonfeld Securities, run by the former employee of Blind’em and Rob’em. Cohen has employed Schonfeld’s traders, including Anthony Bassone, who was until recently assistant controller of SAC Capital; and Rob Cannon, who is Cohen’s top personal trader at SAC. Another “Russian whiz kid”, Michael Orlov, created the computerized trading infrastructure at both SAC and Schonfeld Securities. And, as mentioned, Cohen shares employees and trading strategies with that other “Russian whiz kid” — Dmitry Balyasny, who was once Schonfeld’s biggest earner.

All of which I mention only because I fancy myself a biographer of a particularly destructive network of Wall Street personalities. It may be of no significance that out of Planet Earth’s 11,500 hedge funds, there were only ten hedge funds with large numbers of Dendreon put options at the end of March, 2007. There may be no significance to the fact that of those ten hedge funds, seven were in the same network — Millennium Management; Balyasny Asset Management; WS Capital (the successor to Gryphon Partners); Perceptive Advisors (whose manager was simultaneously working for Paramount Capital); Bernard Madoff Investment Securities; Pequot Management; and SAC Capital (managed by Steve Cohen, who is said to be maniacal about maintaining working relationships with people in his network).

And it could be purely coincidence that these hedge funds were the largest holders of put options on Dendreon shares right at the time that Dendreon was getting clobbered by massive amounts of illegal naked short selling – and right before Dendreon’s treatment for prostate cancer was stymied by an uprecedented lobbying effort led by FDA-contracted doctors and government officials tied to Michael Milken.

By the way, three months later – at the end of June, 2007 — there was just one more hedge fund with large numbers of Dendreon put options. It is not clear from SEC filings whether these put options were bought before or after the FDA announced (on May 8, 2007) that it would not approve Dendreon’s treatment.

Either way, it is probably another coincidence that this eleventh hedge fund that bought large numbers of put options in Dendreon was the above-mentioned Magnetar Capital.

* * * CHAPTER 15 * * *

When Dendreon’s FDA application was derailed simultaneously with a naked short selling attack that flooded the market with tens of millions of phantom shares, Dendreon’s supporters went berserk. They sent the government hundreds of letters complaining about the naked short selling and the apparent machinations of Michael Milken’s associates. After that, all but one of the ten hedge fund managers ceased to own “put options” in Dendreon.

However, the naked short selling continued pretty much unabated for two years. And in April 2009, Dendreon was once again on the SEC’s “Reg Sho” list of companies whose stock was “failing to deliver” in excessive quantities. Dendreon stayed on that list even after the company’s CEO announced that results of an Independent Monitoring Committee study of 500 patients were “unambiguous in nature…a clear hit” for Provenge.

After the CEO’s announcement, Dendreon’s stock, which had been as low as $4 weeks earlier, rose to the mid-20s. Then, on April 28, 2009, just hours before Dendreon was to present this “unambiguous” data to an all-important meeting of the American Urological Association, the now legendary Yahoo! message board post appeared, warning of a “BEAR RAID” that was to occur at precisely 12:30pm Central time. Right on cue, within minutes of the moment predicted by that message, Dendreon’s stock tanked 65% (to $7) in matter of 75 seconds.

Within hours after that amazing crash, Nasdaq announced that it had investigated the matter and decided to let the trades stand. This was quite remarkable, given that it would have been impossible for the exchange to determine the identity of that message board poster and sort through the trading data in such a short period of time. It is all the more remarkable considering that this “BEAR RAID” was most likely the work of naked short selling criminals.

At any rate, it is likely that short sellers, recognizing that it was now going to be more difficult to prevent Dendreon from getting FDA approval, used the opportunity of that sharp price drop to cover their short positions. Some short sellers might also have used the opportunity to buy shares, hoping to cash in on the bonanza that was to follow. After the “BEAR RAID,” Dendreon’s stock price quickly rose above $27.

The night after the “BEAR RAID”, CNBC’s Jim Cramer (who has begun a “crusade” against the crime of naked short selling in an effort to distance himself from his previous efforts to cover up the crime of naked short selling) said “I’m not qualified to talk about Dendreon.” This was just two weeks after Cramer had screamed that Dendreon had no chance of receiving FDA approval. Now, he was no longer commenting on Dendreon’s chances, but he noted, “I am a big believer in taking profits when I see a short squeeze. So I am going to recommend taking profits.”

Some people clearly did take profits. After Cramer’s comment, the stock started to fall, and by May 8, it was at $19. Then the buying started again. Quite possibly, some of the hedge funds that had been short selling Dendreon used the dip to $19 to purchase still more Dendreon shares. After May 8, the stock rose back up to around $25, which is approximately where it remains today. When SEC filings for this period are in, it will be interesting to see which hedge funds bought shares.

But it will remain impossible to know who the criminal short sellers were. As far as the SEC is concerned, that is a big secret – “proprietary trading strategies.”

* * * * * * * *

After Dendreon reported its data to the American Urological Association – data that showed almost precisely what the data showed two years earlier (that is, that Provenge was safe, and that it lengthened survival times while greatly improving the quality of life for end-stage prostate cancer patients who would otherwise be subjected to the misery of chemotherapy) — Milken’s Prostate Cancer Foundation, which had long shunned Dendreon while Milken’s allies maneuvered to derail it, finally concluded that it was time to say something positive about Provenge.

“The PCF is delighted to see evidence of increased patient survival from Provenge,” the Milken “philanthropic” foundation said in a press release. “We share the analysis of Dr. Philip Kantoff, a leader in the PCF Clinical Therapy Consortium…and a principal investigator of the Provenge Phase III clinical study. The results validate 16 years of modern research to harness a patient’s own immune system to fight their prostate cancer and prolong their lives…”

The Prostate Cancer Foundation continued: “The PCF first provided funding to Dr. Eric Small…to support clinical research around measuring immune responses in patients treated with Provenge…”

In other words, Milken’s “philanthropy” hadn’t spent two years ignoring, and in some cases trying to quash Dendreon’s treatment. In fact, the Prostate Cancer Foundation had supported Dendreon all along!

This is nonsense. What the Prostate Cancer Foundation did not mention is that Dr. Philip Kantoff, the physician mentioned in the press release, was on the advisory board of Cougar Biotechnology, the company that Milken’s “philanthropic” foundation was promoting as a better alternative to Dendreon. Moreover, Dr. Kantoff was one of the few physicians to publicly cast doubts on Provenge. He was never able to say that Provenge did not work, but when talking to the press at the time of the FDA advisory panel meeting in 2007, he was dismissive, or at least confused.

“I didn’t think [Provenge] had a snowball’s chance in hell of working,” Dr. Kantoff told Forbes magazine’s Matthew Herper, the journalist who went to lengths to argue against FDA approval. “I’m still skeptical, but I think there’s something going on here.” Kantoff suggested that Provenge could be a “slam dunk,” but maybe the trial size was too small. Left unmentioned was the fact the FDA had regularly approved treatments for dying patients when relatively small trials had shown such stunning results.

As for Dr. Small, he too was on the advisory board of Cougar Biotechnology. The Prostate Cancer Foundation did indeed give him funding to measure immune responses in patients treated with Provenge, but it is not at all clear that Milken’s “philanthropic” outfit was keen to see Dr. Small’s study yield positive results. When the study did yield positive results, Dr. Scher, the chairman of the Prostate Cancer Foundation’s Therapeutic Consortium (referred to in the above press release as the “Clinical Therapy Consortium”), spun them as negative results.

In his letter to the FDA (the one that quickly and mysteriously ended up in the hands of The Cancer Letter), Dr. Scher quoted Dr. Small as saying the following: “In summary, this study suggests that while sipuleucel-T fell short of demonstrating a statistically significant difference in TTP, it may provide a survival advantage to asymptomatic [prostate cancer] patients.” Dr. Small had not written the word “may” in italics. That was Dr. Scher’s improvisation, part of his effort to convince the world that absolute “proof” of efficacy was needed for FDA approval.

As both Dr. Small and Dr. Scher knew, the “gold standard” for physicians, and the federally mandated standard for drug approval, is “survival” — “substantial evidence” that a treatment may help patients live longer. Perhaps Dr. Small felt constrained in challenging Dr. Scher’s misuse of his study. Perhaps he also felt uncomfortable about joining Dr. Scher, who was, after all, the powerful chairman of Milken’s Therapeutic Consortium, at the meeting of the FDA advisory panel that voted on Provenge in March 2007.

Dr. Small was supposed to speak on behalf of Provenge at that panel. Perhaps this concerned the folks at the Prostate Cancer Foundation. Either way, Dr. Small was a no-show at the panel that day.

He apologized – something about a hitch in his travel plans.

* * * * * * * *

In May 2009, while Milken’s Prostate Cancer Foundation was rewriting history, Milken’s hedge fund crony, Steve Cohen, who was one of those seven hedge fund managers who had bet big against Dendreon after the advisory panel meeting in 2007, reached out to Care-to-Live, the grass-roots organization that had done so much to highlight the connections among Milken’s “philanthropy,” Milken’s investments, and Dendreon’s travails

On May 19, one of Care-to-Live’s founders received an email from an employee of CR Intrinsic Investors, which is one of Steve Cohen’s hedge funds. “I’m an investor in biotechnology and pharmaceutical companies and I’m interested in understanding the patients perspective on Provenge and any other therapies in development…,” the email began. “Would you or someone from Care-to-Live be available speak with me…? I have spoken to a number of academic thought leaders, but I’d like to better understand what the patients want…”

And by the way, “I’m happy to provide compensation for time spent speaking with me if that is of interest.”

Milken-affiliated hedge funds already have analysts and journalists regurgitating their party line on command. They also have doctors on the payroll. Might as well put the troublemakers on the payroll, too.

* * * * * * * *

Or perhaps Cohen is genuinely thinking about investing in Dendreon. Perhaps he already has. The intentions of this network remain a matter of some speculation.

Much of this speculation focuses on Dmitry Balyasny, the Russian “whiz kid.” As recently as March of this year, when they filed their last SEC documents, Balyasny’s hedge funds – Balyasny Asset Management, BAM and Visium – held around 3 million put options in Dendreon. Simultaneously, these hedge funds owned an almost equal number of call options. It is possible that Balyasny and his associate, the mysterious Jacob Gottleib, were implementing a split-strike pricing strategy – selling out of the money calls and buying out of the money puts. The effect is to create a large synthetic short position.

But SEC documents show that during much of the past two years, Balyasny’s funds also owned large numbers of Dendreon shares. These could have been shares that they bought to cover short positions. Or it could be that they owned shares to gather proxy votes and put pressure on Dendreon’s management to act in ways that might not be good for the company.

Whatever the case, Dendreon’s latest Schedule 14-A, filed on April 30, showed that Balyasny (previously one of the seven hedge funds with large bets against Dendreon) had become Dendreon’s largest shareholder, with a 9.8% stake in the company. The second largest shareholder was Capital Ventures International, the unit of Susquehanna that did the PIPEs deal with Dendreon. Visium Capital owned 5.5% of Dendreon. Meanwhile, Joseph Edelman, the hedge fund manager who was employed in 2007 by Lindsay Rosenwald, formerly of the Mafia-connected D.H. Blair, has bought at least 2 million Dendreon shares.

In addition to those purchases, many of the Milken network hedge funds that bought Dendreon’s convertible bonds now have the capability to convert, so they, too, might soon count themselves among Dendreon’s largest shareholders. Altogether, this network may already control (or have the ability to convert into control of) as much as 30% of the company.

If Balyasny had acquired more than 10% of the company, he would have been subjected to reporting requirements designed to identify hostile takeover attempts. Given that he acquired just under 10%, and given that he nowhere declares his co-ownership of Visium, which adds 5.5% to his stake, it is possible that Balyasny and others in his network have considered seizing control of the company by stealth.

Incidentally, this is similar to the modus operandi of the Milken network in the 1980s. As most every book on Milken recounts, affiliated investors (some combination of Milken, Ivan Boesky, Carl Icahn, Princeton-Newport, John Mulheren, and others) would each buy, say, 4.9% or 9.8% of a company without declaring themselves to be affiliated investors. In some cases, Milken would “park” stock (e.g. Princeton would secretly buy stock on Milken’s behalf) in order to conceal that he had any ownership at all.

By secretly holding large blocks of shares, the network was able to acquire controlling stakes while bypassing regulatory requirements to declare such positions. Besides putting them in a position to manipulate prices, Milken and friends then put pressure on companies’ managements by quietly letting it be known that they had, as a group, a controlling number of proxy votes.

If Milken’s friends come to control Dendreon, Milken’s “philanthropic” foundation will no doubt continue to articulate its new position of being “delighted” that the data shows that Dendreon’s treatment is safe and effective (which is the same thing the data showed two years and 60,000 American deaths ago). And if the Milken network takes over Dendreon, perhaps Michael Milken will, in the name of “philanthropy,” convince his government minions to grant approval to Provenge, so that it can be administered to the patients who so desperately need it.

But that should not cause us to ignore the ordeal that Dendreon has endured during these past few years. And we should demand an end to a status quo which lets Wall Street miscreants, cheats, and manipulators (and not free markets) decide which companies survive unmolested, and which will be crippled or killed off entirely.

But it is not surprising that criminals see fit to maim public companies.

Consider that it is impossible to buy life insurance on another person’s life. The legal principle has developed that one can only insure something in which one has “an insurable interest.” But imagine that this were not the case. Imagine if it were possible for people to buy insurance on other people’s lives. One can see that there might evolve a type of criminal who would buy life insurance on the lives of others, and then arrange for those people to die.

One can even imagine that, as society wised up to this practice of buying life insurance and then manipulating outcomes, such criminals would evolve new tactics towards the same end. For example, the criminals might target newborn babies in hospitals, because babies are vulnerable, and it would be difficult for anyone to know for certain whether they were dying naturally, or as a result of criminals manipulating outcomes.

One could even imagine that the most sophisticated of these criminals would come to target newborn babies who were already sick, because manipulating their medical outcomes in order to cause their deaths would leave the slightest statistical footprint possible.

In our society one cannot buy life insurance on another person, but one can buy “life insurance” on a company: that is, one can make a bet that a company will fail, and collect on that bet when the company dies. It is the contention of Deep Capture that there are criminals who take out life insurance policies against companies, and then manipulate their outcomes so as to collect on those policies.

And just as we can understand the logic of criminals focusing on newborn babies, so too can we understand why the financial criminals have learned to focus on small, early-stage public companies. And to extend the morbid metaphor one last step: just as the criminals might focus on newborns who are already sick, because their outcomes are already in the most doubt (making the criminal manipulations hardest to spot), so too have the financial criminals learned to focus not just on early-stage public companies, but on early stage public companies working in the field of biotechnology.

That is because in biotechnology the difficulties in valuing a company are at their greatest. There is often little to no revenue. The idea behind the company may be nothing more than the theory of a scientist. No one knows whether it will work. If it works, no one knows how long it will take to prove that it works. And even if it can be proven to work, no one knows how long it will take to clear all the legal and regulatory hurdles it will face. Such companies are favored targets for manipulators because it is easy to manipulate the truth when no one knows the truth, and whatever truth there is lies behind so many veils.

In the case of Dendreon , the truth was hard to miss. It was more than a company with a blockbuster treatment. It was the first company in decades to develop a medicine that could truly revolutionize the way that doctors treat cancer. The company had gathered its data, and the data was conclusive (to a 95% confidence level): Provenge was safe and effective. A panel of experts assembled by the FDA had declared that the treatment should be approved.

So when naked short sellers attacked, and the treatment was derailed, it was obvious that there had been foul play. Hundreds of concerned citizens took it upon themselves to investigate, and document, the footprints of the miscreants. As a result we have been able to present a highly discernible, if admittedly imperfect, picture of their trail.

But we must ask: How many other small biotech companies have been victimized in less obvious ways? How many companies were like the babies in our morbid metaphor — snuffed out before they could demonstrate their potential; killed by criminal naked short sellers and their captured accomplices (journalists, regulators, doctors) who successfully pled innocence, saying the companies died because they were sick or weak? And how many of those murdered companies, weak or not, had medicines that could eventually have improved health and saved lives?

Our morbid metaphor, you see, is not entirely metaphor. Real people have died.

In answer to the question of how many people have died, we know only from the data that abusive and illegal short selling has affected many hundreds of small biotech companies with all manner of medicines. We know that the vast majority of those companies are now gone, and that some number of them, if left to the rigours of the market, but not to the whims of criminal short sellers, would have one day delivered their medicines to patients.

But, of course, we do not know who the criminal short sellers are. According to the Securities and Exchange Commission, that is a big secret – “proprietary trading strategies.”